Resource title

Fiscal, monetary, and financial interactions in dynamic general equilibrium

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Resource description

This paper proposes a model that links households and firms, as usual, by markets for factors and goods and, additionally, by a banking sector that channels households' funds to firms and eliminates idiosyncratic risk. In equilibrium, agency costs and tax benefits of corporate debt are equalizing each other, which renders an institutionally based explanation of financial structure. Adjustment of corporate finance adds to the ordinary savings channel of fiscal and monetary policy. Taking real and financial interactions into account, the model predicts a somewhat lower impact of fiscal policy on macroeconomic aggregates as commonly assessed and a much stronger impact of monetary policy. This amplification is caused by the banking sector's translation of borrowing rates into lending rates and vice versa.

Resource author

Holger Strulik

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/27211

Resource license

Adapt according to the presented license agreement and reference the original author.