Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/191797 
Year of Publication: 
2018
Series/Report no.: 
Bundesbank Discussion Paper No. 57/2018
Publisher: 
Deutsche Bundesbank, Frankfurt a. M.
Abstract: 
We present a model in which banks and other financial intermediaries face both occasionally binding borrowing constraints, and costs of equity issuance. Near the steady state, these intermediaries can raise equity finance at no cost through retained earnings. However, even moderately large shocks cause their borrowing constraints to bind, leading to contractions in credit offered to firms, and requiring the intermediaries to raise further funds by paying the cost to issue equity. This leads to the occasional sharp increases in interest spreads and the counter-cyclical, positively skewed equity issuance that are characteristic of the credit crunches observed in the data.
Subjects: 
Occasionally binding constraints
Credit crunches
Financial crises
Spreads
Dividends
Equity
Banking
JEL: 
E22
E32
E51
G2
ISBN: 
978-3-95729-543-9
Document Type: 
Working Paper

Files in This Item:
File
Size
974.31 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.