06 October 2021

DEMS Economics Webinar: Dr. Vivien Lewis (Deutsche Bundesbank)

October 6th 2021, 12pm CET.

Firm risk shocks and the banking accelerator
Dr. Vivien Lewis

DEMS Economics Webinar series Professor Vivien Lewis (Research Centre, Deutsche Bundesbank) will present the paper: 

Firm risk shocks and the banking accelerator
 with Tommaso Gasparini, Stéphane Moyen and Stefania Villa

Wednesday, October 6, 12:00

Online through Zoom (Meeting ID: 952 0528 5494 Passcode: 011082)

ABSTRACT

Increases in firm default risk raise the default probability of banks in US data. We analyse firm risk shocks in a New Keynesian business cycle model, where entrepreneurs and banks engage in a loan contract and both are subject to idiosyncratic default risk. We show that, through a fall in equity, bank owners partly absorb the losses on banks' balance sheets that originate from a wave of corporate defaults. Bank capital buffers help to cushion the contractionary effects of firm risk shocks. We analyze how different combinations of interest rate rules and macroprudential policies can mitigate the adverse consequences of such shocks. 

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