Financial Intermediation and Macroeconomic Analysis

By Michael Woodford. 2010

299 citations recorded by the source corpus.

a macroeconomic framework in which fi nancial intermediation matters for the allocation of resources. allocation of resources. In this paper, I fi rst discuss why neither standard macroeconomic models that In this paper, I fi rst discuss why neither standard macroeconomic models that abstract from fi nancial intermediation nor traditional models of the "bank lending abstract from fi nancial intermediation nor traditional models of the "bank lending channel" are adequate as a basis for understanding the recent crisis. I argue that channel" are adequate as a basis for understanding the recent crisis. I argue that instead we need models in which intermediation plays a crucial role, but in which instead we need models in which intermediation plays a crucial role, but in which intermediation is modeled in a way that better conforms to current institutional intermediation is modeled in a way that better conforms to current institutional realities. In particular, we need models that recognize that a market-based fi nan- realities. In particular, we need models that recognize that a market-based fi nan- cial system—one in which intermediaries fund themselves by selling securities in cial system—one in which intermediaries fund themselves by selling securities in competitive markets, rather than collecting deposits subject to reserve require- competitive markets, rather than collecting deposits subject to reserve require- ments—is not the same as a frictionless system. ments—is not the same as a frictionless system. I then sketch the basic elements of an approach that allows fi nancial inter- I then sketch the basic elements of an approach that allows fi nancial inter- mediation and credit frictions to be integrated into macroeconomic analysis in a mediation and credit frictions to be integrated into macroeconomic analysis in a straightforward way. I show how the model can be used to analyze the macroeco- straightforward way. I show how the model can be used to analyze the macroeco- nomic consequences of the recent fi nancial crisis and conclude with a discussion of nomic consequences of the recent fi nancial crisis and conclude with a discussion of some implications of the model for the conduct of monetary policy. some implications of the model for the conduct of monetary policy.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/fdd8c6a2042e29140c3056313c8892c2509b5c15

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Citations in the corpus

Monetary Transmission through Shadow Banks (2018, unknown): “5 Although the reserve requirement may have been important historically, many have expressed doubts about its quantitative relevance in recent decades because of technological innovation and regulatory reform after the 1990s (Bernanke and Gertler 1995; Woodford 2010; Drechsler, Savov, and Schnabl 20”
Should Monetary Policy Lean Against the Wind? An Analysis Based on a DSGE Model with Banking (2013, unknown): “Our study corroborates previous results (Cúrdia and Woodford, 2009, 2010; Lambertini et al., 2011; Christiano et al., 2010) using a richer model of the financial sector and analyzing a different range of financial variables that the central bank might want to look at.”
Monetary Policy, Financial Conditions, and Financial Stability (2014, methodology): “Gambacorta and Signoretti (2014) compare the performance of Taylor rules augmented with asset prices and credit supply, building on the setting of Curdia and Woodford (2010), with more standard rules with flexible inflation targeting.”
Banks, Liquidity Management, and Monetary Policy (2014, unknown): “4See for example Woodford (2010) and Mishkin (2011). financial shocks that affect bank leverage constraints and propagate by interrupting financial intermediation or increasing spreads.”