Bank liabilities channel
نویسنده
چکیده
The financial intermediation sector is important not only for channeling resources from agents in excess of funds to agents in need of funds (lending channel). By issuing liabilities it also creates financial assets held by other sectors of the economy for insurance purpose. When the intermediation sector creates less liabilities or the value of outstanding liabilities falls, agents are less willing to engage in activities that are individually risky but desirable in aggregate. The first goal of this paper is to illustrate this ‘bank liabilities channel’. The second goal is to show that fluctuations in bank liabilities could be driven by self-fulfilling expectations about the liquidity of the financial sector. The third goal is to use the model to study the macroeconomic consequences of two recent trends: the growth of emerging economies and financial innovations. Both trends may have contributed to greater financial and macroeconomic instability.
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