Financial Cycles with Heterogeneous Intermediaries / Nuno Coimbra, Hélène Rey.

Format:

Book

Author/Creator:

Coimbra, Nuno.

Contributor:

National Bureau of Economic Research.

Rey, Hélène.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23245.

NBER working paper series no. w23245

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

We develop a dynamic macroeconomic model with heterogeneous financial intermediaries and endogenous entry. Time-varying endogenous macroeconomic risk arises from the risk-shifting behaviour of the cross-section of financial intermediaries. When interest rates are high, a decrease in interest rates stimulates investment and decreases aggregate risk. In contrast, when they are low, further stimulus can increase financial instability while inducing a fall in the risk premium. In this case, there is a trade-off between stimulating the economy and financial stability. This provides a model of the risk-taking channel of monetary policy.

Notes:

Print version record

March 2017.