Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144436
Authors: 
Rannenberg, Ansgar
Year of Publication: 
2012
Series/Report no.: 
Working Paper Research 224
Abstract: 
The paper adds a moral hazard problem between banks and depositors as in Gertler and Karadi (2011) to a DSGE model with a costly state verification problem between entrepreneurs and banks as in Bernanke, Gertler and Girlchrist (1999, BGG). This modification amplifies the response of the external finance premium and the overall economy to monetary policy and productivity shocks. It allows the model to match the volatility and correlation with output of the external finance premium, bank leverage, entrepreneurial leverage and other variables in US data better than a BGG-type model. A reasonably calibrated simulation of a bank balance sheet shock produces a downturn of a magnitude similar to the "Great Recession".
Subjects: 
Financial accelerator
bank leverage
DSGE model
JEL: 
E44
G21
Document Type: 
Working Paper

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