Bank Procyclicality, Credit Crunches, and Asymmetric Monetary Policy Effects: A Unifying Model
9 Pages Posted: 27 Dec 2003
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Bank Procyclicality, Credit Crunches, and Asymmetric Monetary Policy Effects: A Unifying Model
Abstract
Much concern has recently been expressed that both large, procyclical changes in bank assets and "credit crunches" caused by banks' reluctance to expand loans during recessions contribute to economic instability. These effects are difficult to explain using the standard textbook model of deposit expansion, in which deposits are constrained only by reserve requirements. However, these effects follow easily if the model is expanded to include a second, capital constraint.
JEL Classification: E51, E32, G21
Suggested Citation: Suggested Citation
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