Does Interbank Market Matter for Business Cycle Fluctuation? An Estimated DSGE Model with Financial Frictions for the Euro Area

No 398, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali

Abstract: The aim of this paper is to assess the impact of the interbank market on the business cycle fluctuations. We build a DSGE model with heterogeneous households and banks. Two kind of banks are in the model: Deficit banks which are net borrowers on the interbank market and they provide credit to the real economy. The surplus bank are net lender and they could choose to provide interbank lending or purchase government bonds.;The portfolio choice of the surplus bank is affected by an exogenous shock that modifies the riskiness of the interbank lending thus allowing us to capture the collapse of the interbank market and the fl y to quality mechanism underlying the 2007 financial crisis.;The main result is that an interbank riskiness shock seems to explain part of the 2007 downturn and the rise of the interest rate on the credit market just after the financial turmoil.

Keywords: Bayesan estimation; DSGE model; financial frictions; interbank market (search for similar items in EconPapers)
JEL-codes: E30 E44 E51 (search for similar items in EconPapers)
Pages: 69
Date: 2014-03
New Economics Papers: this item is included in nep-ban, nep-dge, nep-eec, nep-fmk, nep-ger, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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http://docs.dises.univpm.it/web/quaderni/pdf/398.pdf First version, 2014 (application/pdf)

Related works:
Journal Article: Does interbank market matter for business cycle fluctuation? An estimated DSGE model with financial frictions for the Euro area (2018)
Working Paper: Does interbank market matter for business cycle fluctuation? An estimated DSGE model with financial frictions for the Euro area (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wpaper:398

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