Cao, Qingqing and Di Pietro, Marco and Kokas, Sotirios and Minetti, Raoul (2022) Liquidity and Discipline. Bank Due Diligence over the Business Cycle. Journal of the European Economic Association, 20 (5). pp. 2136-2183. DOI https://doi.org/10.1093/jeea/jvac022
Cao, Qingqing and Di Pietro, Marco and Kokas, Sotirios and Minetti, Raoul (2022) Liquidity and Discipline. Bank Due Diligence over the Business Cycle. Journal of the European Economic Association, 20 (5). pp. 2136-2183. DOI https://doi.org/10.1093/jeea/jvac022
Cao, Qingqing and Di Pietro, Marco and Kokas, Sotirios and Minetti, Raoul (2022) Liquidity and Discipline. Bank Due Diligence over the Business Cycle. Journal of the European Economic Association, 20 (5). pp. 2136-2183. DOI https://doi.org/10.1093/jeea/jvac022
Abstract
The quality of bank lending is increasingly viewed as a force driving the buildup and unfolding of crises. In a dynamic general equilibrium model, we show that banks' access to liquidity and the values of loan portfolios govern banks' incentives and effectiveness in producing information on loans. Consistent with granular loan-level evidence from U.S. banks, the calibrated model predicts that loan due diligence deteriorates during expansions and intensifies during contractions. This countercyclicality attenuates investment and output effects of liquidity shocks but can moderately amplify loan quality shocks. Credit policies may dilute stabilizing e¤ects of due diligence.
Item Type: | Article |
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Uncontrolled Keywords: | Banks; Business cycle; Due diligence; Aggregate liquidity |
Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Essex Business School |
SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
Depositing User: | Unnamed user with email elements@essex.ac.uk |
Date Deposited: | 21 Jun 2022 11:33 |
Last Modified: | 30 Oct 2024 16:30 |
URI: | http://repository.essex.ac.uk/id/eprint/32726 |
Available files
Filename: JEEA_Draft.pdf