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Short-run and Long-run Effects of Banking in a New Keynesian Model

Miguel Casares and Jean-Christophe Poutineau ()

Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra from Departamento de Economía - Universidad Pública de Navarra

Abstract: This paper introduces both endogenous capital accumulation and deposit-in-advance requirements for investment in the banking model of Goodfriend and McCallum (2007). Impulse response functions from technology and monetary shocks show some attenuation effect due to the procyclical behavior of the marginal finance cost. In addition, an adverse financial shock produces sizeable declines in output, inflation and interest rates. In the long-run analysis, we find the following effects of banking intermediation: (i) the stock of capital increases to take advantage of its collateral services, and (ii) consumption and labor fall in response to the finance cost attached to purchases of goods. Using the baseline calibrated model, we show how a 10% increase in banking efficiency would result in a permanent welfare gain equivalent to 0.3% of output.

Keywords: financial attenuator; financial shocks; welfare cost of banking. (search for similar items in EconPapers)
JEL-codes: E32 E43 E44 (search for similar items in EconPapers)
Pages: pages
Date: 2010
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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http://www2.unavarra.es/gesadj/depEconomia/repec/DocumentosTrab/DT1002.PDF (application/pdf)

Related works:
Journal Article: Short-Run and Long-Run Effects of Banking in a New Keynesian Model (2011) Downloads
Working Paper: Short-run and long-run effects of banking in a new keynesian model (2011)
Working Paper: Short-run and long-run effects of banking in a new keynesian model (2010)
Working Paper: Short-run and long-run effects of banking in a new keynesian model (2010)
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