publication . Other literature type . Article . Preprint . 2010

Credit and Banking in a DSGE Model of the Euro Area

Andrea Gerali; Stefano Neri; Luca Sessa; Federico M. Signoretti;
  • Published: 18 Aug 2010
  • Publisher: Wiley
This paper studies the role of credit-supply factors in business cycle fluctuations. For this purpose, we introduce an imperfectly competitive banking sector into a DSGE model with financial frictions. Banks issue collateralized loans to both households and firms, obtain funding via deposits and accumulate capital from retained earnings. Margins charged on loans depend on bank capital-to-assets ratios and on the degree of interest rate stickiness. Bank balance-sheet constraints establish a link between the business cycle, which affects bank profits and thus capital, and the supply and cost of loans. The model is estimated with Bayesian techniques using data for ...
free text keywords: collateral constraints, banks, banking capital, sticky interest rates, Collateralized debt obligation, Retail banking, business.industry, business, Finance, Macroeconomics, Dynamic stochastic general equilibrium, Demand shock, Business cycle, Economics, Monetary economics, Supply shock, Profit (economics), Retained earnings, jel:E30, jel:E32, jel:E43, jel:E51, jel:E52

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