This paper studies how banks’ balance sheets and funding costs interact in the transmission of monetary-policy rates to banks’ credit supply to firms. To do so, we use credit-registry data from Germany and Portugal together with the European Central Bank’s policy-rate cuts in mid-2014. The...

We show that if business cycles are driven by financial shocks, the interplay between the effective lower bound (ELB) and the costs of external financing can generate an additional supply-side channel, which causes a disconnect between inflation and output. In normal times, factor costs dominate...

We study the equilibrium properties of a business cycle model with financial frictions and price adjustment costs. Capital-constrained entrepreneurs finance risky projects by borrowing from banks. Banks, in turn, make loans using equity and deposits. Because financial contracts are not...

Increases in firm default risk raise the default probability of banks while decreasing output and inflation in US data. To rationalize the empirical evidence, we analyse firm risk shocks in a New Keynesian model where entrepreneurs and banks engage in a loan contract and both are subject to...

In this paper, we study the optimal mix of monetary and macroprudential policies in an estimated two-country model of the euro area. The model includes real, nominal and financial frictions, and hence both monetary and macroprudential policy can play a role. We find that the introduction of a...

Fiscal policymakers are expected to conduct countercyclical policies to mitigate cyclical fluctuations of output, but the assessment of cyclical conditions in real time is subject to considerable uncertainty. They face two types of risk: (i) launching discretionary measures to support or dampen...

Did the Federal Reserve's Quantitative Easing (QE) in the aftermath of the financial crisis have macroeconomic effects? To answer this question, we estimate a large-scale DSGE model over the sample from 1998 until 2020, including data of the Fed's balance sheet. We allow for QE to affect the...

We study the preferential treatment of green bonds in the central bank collateral framework as an environmental policy instrument within a DSGE model with environmental and financial frictions. In the model, green and carbon-emitting conventional firms issue defaultable corporate bonds to banks...