Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/243121 
Year of Publication: 
2021
Publisher: 
ZBW - Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
This paper identifies a precautionary banking liquidity shock via a set of sign, zero and forecast variance restrictions imposed. The shock proxies the banking sector's reluctance to lend to the real economy induced by an exogenous preference change for liquid assets. Through the lens of a DSGE model, the precautionary liquidity shock is shown to work through two channels: reserves (balance sheet) and the deposit rate (intertemporal effect). The overall effect is a downward co-movement in output, consumption, investment, and prices, which is amplified the higher are the long-run risks in the economy and banks' responsiveness to potential risk.
Subjects: 
SVAR
Sign and Zero Restrictions
DSGE
Precautionary Liquidity Shock
Excess Reserves
Deposit Rate
Risk
Financial Intermediation
JEL: 
C10
C32
E30
E43
E51
G21
Document Type: 
Preprint

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