With the Lunch Seminar series, the Department of Finance is bringing eminent and up-and-coming researchers from around the world to Luxembourg.
“Why Does the Yield Curve Predict GDP Growth? The Role of Banks”
Speaker: Camelia Minoiu
Federal Reserve Bank of Atlanta
DATE: Tuesday, 19 September 2023
TIME: 12:15 – 13:30
Abstract:
We provide evidence on the effect of the slope of the yield curve on economic activity through bank lending. Using detailed data on banks’ lending activities coupled with term premium shocks identified using high-frequency event study or instrumental variables, we show that a steeper yield curve associated with higher term premiums (rather than higher expected short rates) boosts bank profits and the supply of bank loans. Intuitively, a higher term premium represents greater expected profits on maturity transformation, which is at the core of banks’ business model, and therefore incentivizes bank lending. This effect is stronger for ex-ante more leveraged banks. We rationalize our findings in a portfolio model for banks.
The seminar will be held in-person.
Venue:
University of Luxembourg
Campus Kirchberg
JFK Building, Room Nancy / Metz
29, Avenue J.F. Kennedy
1855 Luxembourg
Please note that cold lunch will be provided for registered participants only.
This event is Supported by the Luxembourg National Research Fund (2022/17573036)