Implications on households of bank's asset substitution

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Temas de Estabilidad Financiera ; No. 53

Date published

2010-12-01

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2010-12

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eng
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Las opiniones contenidas en el presente documento son responsabilidad exclusiva de los autores y no comprometen al Banco de la República ni a su Junta Directiva.

The opinions contained in this document are the sole responsibility of the author and do not commit Banco de la República or its Board of Directors.

Abstract

In this paper we develop a DSGE model to analyze the welfare implications over households that bank's asset recomposition might have. We model a representative bank that potentially faces liquidity difficulties due to a mismatch between credits issued to firms and deposits supplied by households. This bank has a portfolio consisting of loans and bonds. The results show that positive liquidity shocks, driven by changes in the household preferences, affect the bank's asset allocation decisions and are beneficial to households. Similarly, when the bond's return rate increases, there is a substitution effect that lowers the loan to bond ratio, but despite this, the bank's intermediation activity increases inducing a positive effect over the household's welfare.

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Esta obra está bajo licencia internacional Creative Commons Reconocimiento-NoComercial 4.0.

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