The role of bank capital as a propagation channel of shocks is strongly pronounced in recent macroeconomic models. In … this paper, we show how the evolution of bank capital depends on the share of non-state-contingent assets in banks’ balance …

world with only a monetary policy and a productivity shock, the full model matches the relative volatility of the external … finance premium, while a BGG model generates too low volatility. The full model also matches the procyclicality of bank …