General equilibrium with banks and the factor-intensity condition

This paper looks at the role played by the factor-intensity condition in the model developed by Leao (2003). To do this, we examine how the model reacts when the factor-intensity condition is reversed so that the banking industry ceases to be the capital intensive sector and becomes the labour intensive sector. Simulation results show that, in general, the qualitative nature of the results does not change. However, there two cases where the qualitative results are affected: the response of the real wage and of the labour supply to a shock in the banks technological parameter. We present an interpretation for these results based in part on the framework devised by Heckscher and Ohlin. We conclude that the factor-intensity condition does play a significant role in the model of Leao (2003).FC

The Subprime Crisis and the Global Public Policy Response

In this paper, we look at the root causes of the 2007-2009 subprime financial crisis and its consequences. We then examine the way public authorities responded to the crisis. We emphasize the fact that, from the start, public policy developed along two complementary, but distinct, lines: (i) short term macroeconomic management; (ii) medium to long term reshaping of the financial regulation framework. We point out that the decision process occurred as a global approach instead of having worked at the national level; and we mention the details of this process. Finally we examine the detailed measures concerning required capital ratios, bank liquidity and bank leverage requirements, transparency measures and bankers bonuses proposals. JEL Classification: E32, E58, E62, G38FC

Consumer durables and the business cycle

DINÂMIA, Setembro de 2008.In this paper, we examine the effect of improving the quality of the consumer durables on the general equilibrium of a perfectly competitive economy. Our most interesting finding is that when such an improvement occurs, the percentage response of the labour supply is higher than the percentage response of real output. This is interesting because one of the main shortcomings of standard Real Business Cycle models is that they tend to generate a response of work hours much weaker than the response of real output.FC

Technological innovations and the interest rate

We build a dynamic general equilibrium model that adds a banking sector to the standard RBC model. We look at the response of the real interest rate to innovations in the banks' technology and in the nonbank firms' technology. While technological innovations in the nonbanking sector put upward pressure on the interest rate, technological innovations in banks exert downward pressure on the interest rate. This implies that, if the technological innovations in banks are strong enough, stochastic simulation experiments generate negative correlations between the real interest rate and current and future values of real output. This is especially significant because negative correlations between the interest rate and output are a key post-war U.S. business cycle fact difficult to replicate in benchmark dynamic models.info:eu-repo/semantics/acceptedVersio

Modelling the central bank repo rate in a dynamic general equilibrium framework

This paper incorporates two components of a modern monetary system into a standard real business cycle model: a central bank which lends reserves to commercial banks and charges a repo interest rate; and banks which make loans under a fractional reserve system and thereby create money. We examine the response of our model to shocks in the monetary base, in the currency-deposits ratio and in the required reserve ratio. Our main finding is that all these monetary shocks lead to changes in the composition of total investment between the banking and the non-banking sectors.info:eu-repo/semantics/acceptedVersio

Modelling the central bank repo rate in a dynamic general equilibrium framework

JEL Classification: E13, E52.The present paper adds a central bank to an existing general equilibrium model with banking sector. In our model, the central bank lends reserves to commercial banks and charges its repo interest rate. We obtain the usual result of flexible price models that expansionary monetary policy has a negligible effect on real variables such as output, consumption and investment expenditure. However, the composition of total investment is significantly altered as investment by banks increases at the expense of investment by nonbank firms. This result is a consequence of our explicit modelling of the central bank repo rate

A decentralized approach to general equilibrium analysis

DINÂMIA, Julho de 2008.In this paper we develop a decentralized zero growth version of the model in King, Plosser and Rebelo (1988). By zero growth model we mean a model where physical output is constant in the steady-state. Note that, for the purposes of simulation, King, Plosser and Rebelo also transform their exogenous growth model into a model which is essentially a zero growth model. Our use of a decentralized version can also be explained. First, with a decentralized approach the assumptions we are using and their role become clearer. For example, with a Constant Returns to Scale production function the number of households and the number of firms is not important in terms of describing the equilibrium behaviour of the economy. But we may want to try other technologies. Second, the decentralized approach is more general. It can be used even when the assumptions of the second welfare theorem do not hold. Imperfect competition and distorting taxation are examples of realities which cannot be tackled using the second welfare theorem. In the model we construct, there are only two types of economic agents: households and firms. It is also important to note from the outset that we only have real variables in the model.FC

A dynamic general equilibrium model with technological innovations in the banking sector

We use a dynamic general equilibrium model where banks are treated as profit maximizing firms. We examine the behavior of the model when there are technological innovations that are specific to the banking industry as well as technological innovations in nonbank firms. In a stochastic simulation experiment where the technological shocks in banks and the technological shocks in nonbank firms are identical and perfectly correlated, we are able to approximately replicate the contemporaneous correlation between banks' investment and real output and the contemporaneous correlation between work hours in banks and real output that we see in the data. With one exception, the correlations between banks' investment and the past and future values of real output that we obtained with our model have the same sign as in the data. With two exceptions, the correlations between work hours in banks and the past and future values of real output that we obtained have the same sign as in the data.info:eu-repo/semantics/acceptedVersio