Our Co Founder and Managing Director, Alexis Montecinos, published a new article entitled “DSGE Model with Government-owned Banks”, where he studies the role that government-owned banks could play in the economy, especially during a recession.
The study argues that the capitalization of government-owned banks during recessions softens the effects of a negative shock and helps the economy recover more quickly. However, these stabilizing effects could be partially offset by the inefficiency of these banks in transforming a unit of capital into loans. Therefore, ignoring the heterogeneity between private and publicly owned banks may lead to misleading assessments and conclusions of the effects of economic policy on macroeconomic and banking variables.
Review the full study here.