How does heterogeneity in banks' interest-rate risk exposure shape monetary policy transmission? We develop a quantitative macroeconomic model of heterogeneous banks to answer this question. We establish an irrelevance result: differences in interest-rate risk exposure between fixed- and variable-rate banking systems matter for transmission only when bank solvency concerns become relevant. Calibrating the model to the euro area, we show that idiosyncratic default risk pushes a substantial share of banks toward the solvency threshold, making heterogeneity quantitatively important. When policy rates rise, fixed-rate banks suffer net interest margin compression—funding costs increase while legacy loan income stays unchanged—eroding capital and triggering sharper deleveraging. The lending elasticity to monetary policy is one-third larger in fixed-rate economies. The effects extend to financial stability: tightening raises bank failure rates in fixed-rate systems while lowering them in variable-rate systems. The results provide a rationale for macroprudential and monetary policy coordination and for monetary policy gradualism.

We develop a quantitative general equilibrium model of the U.S. mortgage market where securitization, as a technology, links the credit and asset-backed security markets. Heterogeneous lenders trade in a securitization market subject to adverse selection: originators are privately informed about loan quality, while buyers anticipate a higher share of low-quality loans when household defaults rise. This friction generates an information-friction multiplier: a feedback loop where surges in household defaults drive down security prices, reduce lender liquidity, and contract mortgage credit supply. Applied to the Global Financial Crisis (GFC), the model reproduces two-thirds of the observed contraction in mortgage credit and the collapse of mortgage-backed security issuance, with information frictions amplifying the credit contraction by a factor of roughly 1.2. We use the framework to evaluate post-GFC credit guarantee policies. Post-GFC pricing stabilizes credit but generates a fiscal deficit. Pricing guarantees to reflect the amplification effects of information frictions eliminates the deficit and delivers welfare gains for both borrowers and lenders.

We study the welfare and macroeconomic implications of simple and implementable fiscal policy rules in commodity-dependent economies, where a large share of output, exports, and government revenues depends on exogenous and volatile commodity prices. Using a multi-sector New Keynesian model estimated for the Chilean economy, we find that the welfare-maximizing fiscal policy involves an actively countercyclical response to the tax revenue cycle and an acyclical response to the commodity revenue cycle. Compared to a benchmark acyclical policy, the optimized rule reduces macroeconomic (GDP growth) volatility while delivering welfare gains of 0.6% of lifetime consumption for the average household (1.2% for hand-to-mouth households). Government consumption and especially public investment are particularly helpful in stabilizing GDP, while targeted social transfers are essential to smooth the consumption of financially constrained households. Implementing the optimized rule requires moderate additional volatility (fiscal activism) in government spending and public debt.

How should bank capital requirements be set to deal with climate-related transition risks? We build a general equilibrium macro banking model where production requires fossil and low-carbon energy intermediate inputs, and the banking sector is subject to volatility risk linked to changes in energy prices. Introducing carbon taxes to reduce carbon emissions from fossil energy induces risk spillovers into the banking sector. Sectoral capital requirements can effectively address risks from energy-related exposures, benefiting household welfare and indirectly facilitating capital reallocation. Absent carbon taxes, implementing fossil penalizing capital requirements does not reduce emissions significantly and may threaten financial stability. During the transition, capital requirements can complement carbon tax policies, safeguarding financial stability and trading off long-run welfare gains against lower investment and credit supply in the short run.

This paper studies how information frictions in the securitization market amplify the response of mortgage credit supply to house price shocks. Securitization prices and quantities endogenously result from an optimal contracting problem between investors and banks. Banks are better informed than investors about the quality of mortgages they originate, leading to adverse selection in securitization. Investors use the quantity sold as a screening device to induce banks to reveal truthful information. We find that adverse selection amplifies the response of a bank’s mortgage credit to house price shocks. The degree of amplification is also a function of the technological differences in managing portfolios between banks and investors. The model is informative on how information frictions can induce large fluctuations in mortgage credit supply.