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UID:7b9d7420c5354203b0487c1be1468531
CATEGORIES:Seminars
CREATED:20250904T085448
SUMMARY:Paolo Varraso - University of Rome Tor Vergata
DESCRIPTION;ENCODING=QUOTED-PRINTABLE:\n\nBanks’ Maturity Choices and the Transmission of Interest-Rate Risk\n\n\
 nAbstract:\nI study the role of financial intermediaries in the transmissio
 n of interest-rate risk. I develop a quantitative model where banks can inv
 est in assets of different durations and choose optimally their exposure to
  interest-rate fluctuations. I embed this portfolio problem in a heterogene
 ous-banks framework with financial frictions and endogenous default. The mo
 del predicts that in periods of loose monetary policy banks face weaker fin
 ancial constraints. As a result, they become more tolerant of interest-rate
  risk and invest more extensively in long-duration assets. However, when th
 e economy undergoes a sudden monetary tightening, this portfolio shift ampl
 ifies contractions in asset prices, credit, and output. I validate the mode
 l by showing that it can reproduce aggregate and cross-sectional patterns r
 elated to banks’ maturity mismatches, the level of the interest rate and le
 verage. A quantitative application to the 2022 monetary tightening shows th
 at a lengthening of duration in periods of low interest rates gives rise to
  significant financial amplification. A liquidity requirement that restrict
 s banks’ investment in long-term assets makes the economy less vulnerable t
 o sudden interest-rate raises.\n
DTSTAMP:20260525T002712Z
DTSTART:20250929T163000Z
DTEND:20250929T180000Z
SEQUENCE:0
TRANSP:OPAQUE
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