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Authors: Hülße, Konstanze
Title: Financial intermediation in a new Keynesian DSGE model : a study on consequences of non-systemic bank failure for monetary policy
Other Titles: Finanzintermediation in einem Neu-Keynesianischen DSGE Modell : eine Studie zu Konsequenzen nicht-systemischer Bankinsolvenz für die Geldpolitik
Issue Date: 2017 Dissertation XXXII, 286
Abstract: The recent financial crisis spurred the discussion about bank failures as a feature of reality both in popular and academic realms. Yet, not every defaulting bank is of systemic relevance and leads to a financial crisis. When a bank fails, the business is either dismantled or taken over by a different entity. In the sense that banks are private businesses, this may be considered an ordinary phenomenon. Yet, to the extent that banks play a special role in transmitting monetary policy impulses, the incidence of non-systemic bank failure can have extraordinary consequences for monetary policy. These consequences are the central concern of this thesis. The objective of this thesis is to provide an integrated, (comparatively) comprehensive yet focused assessment of the impact of non-systemic bank failures on monetary policy conduct. For this purpose, this thesis studies monetary policy transmission as well as the trade-off between different monetary policy objectives with and without non-systemic bank default. These two aspects of monetary policy are analysed in a benchmark case and when there are additional macroprudential policies in place to counter financial fragility. For analysing these topics, a standard New Keynesian dynamic stochastic general equilibrium (DSGE) model with financial accelerator is extended to incorporate non-systemic bank default. The banking model presented in this thesis features the endogenous determination of non-systemic bank default and bank leverage through workers’ portfolio choice problem. A financial accelerator model without the additional bank-specific friction is used as a reference to discern the effects of non-systemic bank failures. For the analysis, both the banking and the financial accelerator models are log-linearised around their respective deterministic steady states. These log-linear approximations are estimated on German data using Bayesian techniques. The next and final step consists in simulating the log-linear banking and financial accelerator models for monetary policy analysis purposes. In conclusion, this thesis corroborates and extends the existing literature in a variety of ways. On the theoretical side, this study proposes a model with a set of additions to a standard New Keynesian DSGE model with a loan market friction. Furthermore, the single focus on non-systemic bank default as the additional bank-specific distortion, abstracting from other influences such as tax advantages or capital requirements, and its explicit microfoundation provide a rigorous foundation for the analysis. On this count, this thesis contributes to the relevant literatures a comprehensive evaluation of the consequences of non-systemic bank failure for monetary policy, not only concerning transmission but also the central bank’s capabilities with respect to its objectives. On the empirical side this thesis highlights the importance of sensitivity and robustness analyses as well as providing estimates for a New Keynesian DSGE model based on data for Germany. Finally, this thesis contributes on the issues of macroprudential policies and their interactions with monetary policy. The discussion of macroprudential policies in this thesis highlights the need for a rigorous and transparent modelling approach as well as implementation of any additional policy so as to adequately gauge its impact and usefulness and to communicate any changes duly.
Appears in Collections:10 Fakultät Wirtschafts- und Sozialwissenschaften

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