Banking in computable general equilibrium economies

Javier Díaz-Giménez, Edward C. Prescott, Terry Fitzgerald, Fernando Alvarez

Research output: Contribution to journalArticle

61 Scopus citations

Abstract

In this paper we develop a computable general equilibrium economy that models the banking sector explicitly. Banks intermediate between households and between the household sector and the government sector. Households borrow from banks to finance their purchases of houses and they lend to banks to save for retirement. Banks pool households' savings and they purchase interest-bearing government debt and non-interest-bearing reserves. We use this structure to answer two sets of questions: one normative in nature that evaluates the welfare costs of alternative monetary and tax policies, and one positive in nature that studies the real effects of following a procyclical interest-rate policy rule.

Original languageEnglish (US)
Pages (from-to)533-559
Number of pages27
JournalJournal of Economic Dynamics and Control
Volume16
Issue number3-4
DOIs
StatePublished - Jan 1 1992
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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