Nuremberg Research Seminar in Economics on 26 January 2022 – ZOOM

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You are invited to join the weekly Nuremberg Research Seminar in Economics on 26 January 2022, from 13.15 to 14.45 pm. The seminar will be held via ZoomTommaso Monacelli (SDA Bocconi) will be talking about „Bewley Banks“.

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We document five facts about the cross-sectional distribution of banks’ assets, leverage, returns and markups, pointing to significant heterogeneity and market power on both the asset and the liability side. We develop a dynamic general equilibrium model with heterogeneous monopolistic financial intermediaries, incomplete markets, default risk, endogenous bank entry, and aggregate uncertainty. The model generates a bank net worth distribution fluctuation problem analogous to the canonical Bewley-Huggett-Aiyagari-Imrohoglu environment. Time-varying banks’ market power and a precautionary lending motive both dampen aggregate responses to exogenous shocks. Counter-cyclical idiosyncratic bank return risk, however, is a significant source of business cycle amplification, especially in the case of banking crises.