Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/249895 
Year of Publication: 
2021
Series/Report no.: 
ECB Working Paper No. 2622
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We introduce frictional financial intermediation into a HANK model. Households are subject to idiosyncratic and aggregate risk and smooth consumption through savings and consumer loans intermediated by banks. The banking friction introduces an endogenous countercyclical spread between the interest rate on savings and on loans. This interacts with incomplete markets because borrowers and savers face different intertemporal prices, and induces a time-varying mass point of high MPC households. Aggregate shocks through their impact on the spread give rise to consumption inequality. We show this mechanism to be empirically relevant. Ex-ante macro prudential regulation reduces welfare by reducing consumption smoothing.
Subjects: 
Business cycles
financial frictions
incomplete markets
macroprudential regulation,monetary policy
JEL: 
C11
D31
E32
E63
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4909-5
Document Type: 
Working Paper

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