Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/100659
Authors: 
Kühl, Michael
Year of Publication: 
2014
Series/Report no.: 
Discussion Paper, Deutsche Bundesbank 19/2014
Abstract: 
This paper compares the consequences of equity injections into banks with purchases of corporate and government bonds in a financial crisis situation using a New Keynesian model in which non-financial firms predominantly take non-market-based debt from banks instead of issuing securities. Our results show that equity injections into banks are more welfare enhancing than asset purchases following a financial shock located in the banking sector. Equity injections remove the frictions that have initiated the stress and, at the same time, relax borrowing conditions. Outright purchases also increase welfare but lower returns with negative effects on banks' profits, while the effect on asset prices to stabilize banks' balance sheets is of minor importance due to the dominance of non-market-based debt. Furthermore, we demonstrate that the origin of the financial shock matters crucially for the efficacy of measures.
Subjects: 
DSGE Model
Financial Frictions
Financial Accelerator
Unconventional Policy Measures
Asset Purchase Programs
Capital Injections into Banks
JEL: 
E44
E58
E61
ISBN: 
978-3-95729-051-9
Document Type: 
Working Paper

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