Template-Type: ReDIF-Paper 1.0

Author-Name: Andrea Boitani
Author-X-Name-First: Andrea
Author-X-Name-Last: Boitani
Author-Email: andrea.boitani@unicatt.it
Author-Workplace-Name: Università Cattolica del Sacro Cuore
Author-Workplace-Name: Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore

Author-Name: Chiara Punzo
Author-X-Name-First: Chiara
Author-X-Name-Last: Punzo
Author-Email: chiara.punzo@unicatt.it
Author-Workplace-Name: Università Cattolica del Sacro Cuore
Author-Workplace-Name: Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore

Title: Banks’ leverage behaviour in a two-agent New Keynesian model.


Abstract: In a NK model with two types of rational agents, savers and capitalists, and non-
maximizing banks, …nancial shocks do a¤ect the macroeconomic dynamics depending
on banks’behaviour as for their leverage ratio. We …rst show that the level of banks’
leverage - which may be imposed by banks regulation - a¤ects the steady state level
of output, employment and consumption, as might be expected in a non-Modigliani-
Miller world. Di¤erent banks’ behaviour after a shock has widely di¤erent e¤ects
on the macroeconomic dynamics: passive leverage results to be shock absorbing and
capable of neutralizing an initial …nancial shock, whilst procyclical behaviour implies
higher and more persistent instability and distributive e¤ects than the constant lever-
age behaviour. Finally, we show that the interaction of procyclical leverage with
hysteresis in output and employment stregthens the persistence of …nancial shocks.

Length: 23
Creation-Date: 2018-01
File-URL: http://dipartimenti.unicatt.it/economia-finanza-def063.pdf
File-Format: Application/pdf
File-Function: First version, 2018
Number: def063
Classification-JEL: E32; E44; E70; G01. 
Keywords: Leverage, Procyclicality; Two-agent model; Non-maximising banks.
Handle: RePEc:ctc:serie1:def063