Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/189931
Authors: 
Boel, Paola
Camera, Gabriele
Year of Publication: 
2016
Series/Report no.: 
Sveriges Riksbank Working Paper Series 331
Abstract: 
We extend the study of banking equilibrium in Berentsen, Camera and Waller (2007) by introducing an explicit production function for banks. Banks employ labor resources, hired on a competitive market, to run their operations. In equilibrium this generates a spread between interest rates on loans and on deposits, which naturally reflects the efficiency of financial intermediation and underlying monetary policy. In this augmented model, equilibrium deposits yield zero return in a deflation or very low inflation. Hence, if monetary policy is sufficiently tight then banks end up reducing aggregate efficiency, soaking up labor resources while offering deposits that do not outperform idle balances.
Subjects: 
banks
frictions
matching
JEL: 
C70
D40
E30
J30
Document Type: 
Working Paper
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