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- Title
Financial Cycles with Heterogeneous Intermediaries.
- Authors
Coimbra, Nuno; Rey, Hélène
- Abstract
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.
- Subjects
INTEREST rates; MONETARY policy; FINANCIAL institutions; RISK premiums; MACROECONOMIC models
- Publication
Review of Economic Studies, 2024, Vol 91, Issue 2, p817
- ISSN
0034-6527
- Publication type
Article
- DOI
10.1093/restud/rdad039