Econometrica

Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: May, 2021, Volume 89, Issue 3

A Macroeconomic Model with Financially Constrained Producers and Intermediaries

https://doi.org/10.3982/ECTA16438
p. 1361-1418

Vadim Elenev, Tim Landvoigt, Stijn Van Nieuwerburgh

How much capital should financial intermediaries hold? We propose a general equilibrium model with a financial sector that makes risky long‐term loans to firms, funded by deposits from savers. Government guarantees create a role for bank capital regulation. The model captures the sharp and persistent drop in macro‐economic aggregates and credit provision as well as the sharp change in credit spreads observed during financial crises. Policies requiring intermediaries to hold more capital reduce financial fragility, reduce the size of the financial and non‐financial sectors, and lower intermediary profits. They redistribute wealth from savers to the owners of banks and non‐financial firms. Pre‐crisis capital requirements are close to optimal. Counter‐cyclical capital requirements increase welfare.


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Supplement to "A Macroeconomic Model with Financially Constrained Producers and Intermediaries"

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Supplement to "A Macroeconomic Model with Financially Constrained Producers and Intermediaries"

This online appendix contains material not found within the manuscript.