Publication: Banking in Computable General Equilibrium Economies
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1992
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Abstract
In this papaer 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 househols' savings and they purchase interestbearting government debt and non-ibterest bearing reserves. We use this structure to answer two sets of questions: one normative in nature the evaluates the welfare costs of alternative monetary and tax policies, and one positive in nature that studies the real effects of following a procyclical interestrate policy rule.