Working Paper

Bank procyclicality, credit crunches, and asymmetric monetary policy effects: a unifying model


Abstract: Much concern has recently been expressed that both large, procyclical changes in bank assets and "credit crunches" caused by bank reluctance to expand loans during recessions contribute to economic instability. These effects are difficult to explain using the standard textbook model of deposit expansion in which deposits are constrained only by reserve requirements. However, these effects follow easily if the model is expanded to include a second, capital constraint.

Keywords: Bank assets; Monetary policy;

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Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Working Paper Series

Publication Date: 2002

Number: WP-02-18