Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/78432
Authors: 
Fachat, Christian
Year of Publication: 
2000
Series/Report no.: 
Bonn Econ Discussion Papers 3/2000
Abstract: 
This paper presents a full model of the Credit Channel of the monetary transmission mechanism. In particular, the special role of the banking sector is derived endogenously and special attention is paid to the role of borrowers' net worth. A debt contracting problem with asymmetric information and heterogeneous borrowers is embedded in a stochastic dynamic general equilibrium model with money. In contrast to the traditional assumption, the paper assumes that agency costs arise in the production of aggregate output instead of in the investment sector. Numerical simulations of the model economy show two major points: First, the model with heterogeneous borrowers does not replicate as many stylized facts as the model without heterogeneous borrowers. Second, the model dampens the impulse response of output after a positive money supply shock, compared to the standard monetary business cycle model. Interestingly, the results of this paper differ considerably from the results o! f a related paper with agency costs arising in the production of the investment good.
Subjects: 
financial intermediation
costly state verification
monetary transmission mechanism
credit channel
limited participation
liquidity effect
JEL: 
E13
E32
E44
E51
Document Type: 
Working Paper

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