Working Papers present research work by both Danmarks Nationalbank’s employees and our partners. Working Papers are primarily targeted at professionals and people with an interest in central banking research as well as economics and finance in a broader sense.

No. 200

Financial Frictions: Micro vs. Macro Volatility

Danish data show that elevated credit spreads reduce consumption of indebted households, inducing a countercyclical marginal propensity to consume. We develop a HANK model, incorporating bank financing for both firms and households. We find that banking regulation, while stabilizing at the aggregate level, may induce volatility at the household level.

C11, D12, D31, E32, E52, G51