Leverage restrictions in a business cycle model

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dc.contributor.authorChristiano, Lawrence J.
dc.contributor.authorIkeda, Daisaku, 1928-
dc.date.accessioned2019-11-01T00:06:10Z
dc.date.available2019-11-01T00:06:10Z
dc.date.issued2014
dc.descriptionWe seek to develop a business cycle model with a financial sector which can be used to study the consequences of policies to restrict the leverage of financial institutions (banks). Because we wish the model to be consistent with basic features of business cycle data we introduce our banking system into a standard medium sized DSGE model such as Christiano Eichenbaum and Evans (2005) (hereinafter CEE) or Smets and Wouters (2007). Banks in our model operate in perfectly competitive markets. Our model implies that social welfare is increased by restricting bank leverage relative to what leverage would be if financial markets were unregulated. With less leverage banks are in a position to use their net worth to insulate creditors in case there are losses on bank’s balance sheets. Our model implies that by reducing risk to creditors agency problems are mitigated and the efficiency of the banking system is improved.
dc.file.nameBCCh-sbc-v19-p215_256
dc.format.pdf
dc.format.extentSección o Parte de un Documento
dc.format.mediump. 215-256
dc.identifier.isbn978-956-7421-45-9
dc.identifier.urihttps://hdl.handle.net/20.500.12580/3806
dc.language.isoeng
dc.publisherBanco Central de Chile
dc.relation.ispartofSeries on Central Banking Analysis and Economic Policies no. 19
dc.rightsAttribution-NonCommercial-NoDerivs 3.0 Chile*
dc.rights.urihttp://creativecommons.org/licenses/by-nc-nd/3.0/cl/*
dc.subjectCICLOS ECONÓMICOSes_ES
dc.subjectBANCOSes_ES
dc.subjectMERCADO FINANCIEROes_ES
dc.titleLeverage restrictions in a business cycle model
dc.type.docArtículo

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