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Macroeconomic Implications of Deep Habits in Banking

December 08, 2010

Maria Olivero, Ph.D., assistant professor of economics, had a paper she co-authored, "Macroeconomic Implications of Deep Habits in Banking,” published in the Journal of Money, Credit and Banking, Vol. 42(8), pp. 1495-1521, December.

In it, she and co-author Roger A. Aliaga-Díaz find that recent empirical evidence shows that price-cost margins in the market for bank credit are countercyclical in the U.S. economy, and that this cyclical behavior can be explained in part by the fact that switching banks is costly for customers.

Their paper studies the role of these countercyclical margins as a propagation mechanism of macroeconomic shocks. Their study shows that the real effects productivity shocks are directly related to the switching costs; and that output, investment, and employment all become more volatile as with the increasing importance of countercyclical margins.

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