Bank Capital in the Short and in the Long Run

Mendicino, Caterina; Nikolov, Kalin; Suárez, Javier; Supera, Dominik

doi:10.2139/ssrn.3213292

Cited by 11 publications

(17 citation statements)

References 41 publications

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“…7 There are many more structural models of the euro area developed and maintained by ECB researchers that are part of the suite of models we use for particular policy exercises. See, amongst others, Christiano, Motto, and Rostagno (2010); Darracq Pariès and Kühl (2016) and Mendicino, Nikolov, Suarez, and Supera (2019). In terms of the Phillips Curve, these models are similar to the one described in the main text.…”

Section: The New Keynesian Phillips Curvementioning

confidence: 73%

The Phillips Curve at the ECB

Eser

Karádi

Lane

et al. 2020

The Manchester School

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We explain the role of the Phillips Curve in the analysis of the economic outlook and the formulation of monetary policy at the ECB. First, revisiting the structural Phillips Curve, we highlight the challenges in recovering structural parameters from reduced-form estimates and relate the reduced-form Phillips Curve to the (semi-)structural models used at the ECB. Second, we identify the slope of the structural Phillips Curve by exploiting crosscountry variation and using high-frequency monetary policy surprises as instruments. Third, we present reduced-form evidence, focusing on the relation between slack and inflation and the role of inflation expectations. In relation to the recent weakness of inflation, we discuss the role of firm profits in the pass-through from wages to prices and the contribution of external factors. Overall, the available evidence supports the view that the absorption of slack and a firm anchoring of inflation expectations remain central to successful inflation stabilization.

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Section: The New Keynesian Phillips Curvementioning

confidence: 73%

The Phillips Curve at the ECB

Eser

Karádi

Lane

et al. 2020

The Manchester School

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“…An important common element is instead the costly issuance of new capital. This work also relates to a recent paper by Mendicino et al (2019) studying the relationship between short-run costs and the long-run benefits of capital requirement. Their paper shows that capital requirements make banks safer by addressing long-run stability risks.…”

Section: Related Literaturementioning

confidence: 78%

Recapitalization, Bailout, and Long-run Welfare in a Dynamic Model of Banking

Modena

2020

SSRN Journal

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This paper studies the link between bank recapitalization and welfare in a dynamic production economy. The model features financial frictions because banks benefit of a cost advantage at monitoring firms and face costly equity issuance. The competitive equilibrium outcome is ine cient because agents do not internalize the e↵ects banks' capitalization over the allocation of capital, its price and, in turn, firms investments.It follows, individual recapitalizations are sub-optimal and bailout policies may benefit social welfare in the long-run. Bailouts improve capital allocation in states where aggregate banks are poorly capitalized, therefore enhancing their market valuation, fostering investments, and stabilizing the economy recovery path. (JEL D51, G21)

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“…Macroprudential policy, in contrast, is clearly counter-cyclical, for example by releasing countercyclical capital buffers in order to mitigate contagion and spill-over effects. However, an accommodative monetary policy can mitigate the short-run costs of an increase in capital requirements, especially at the lower bound of interest rates (Mendicino et al, 2017;Beyer et al, 2017).…”

Section: Policy Interaction Transmission and Potential Conflicts Betmentioning

confidence: 99%

Foreword ‒ The Crisis, Ten Years After: Lessons Learnt for Monetary and Financial Research

Beyer¹,

Cœuré²,

Mendicino³

2017

Ecostat

Self Cite

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Ten years after the global and European financial crises, significant progress has been made both in financial and economic research to address the shortcomings of mainstream modelling frameworks used to inform monetary and financial policymaking. This article first reviews the progress made in the field of econometric modelling, namely more elaborated financial sectors, partial non-linearity, addressing the effective lower bound for interest rates, and dealing with heterogeneity across countries and economic agents. We then describe how such progress has helped assessing the impact of unconventional monetary policy and the interaction between monetary and prudential policies, also building on the extensive use of micro-data. We conclude that more research remains needed on the transmission of negative rates and their financial stability repercussions, and to understand better central bank communication (including forward guidance on monetary policy) by introducing elements of bounded rationality. Research remains also needed on building models with more heterogeneous agents, given the relevance of heterogeneity for the transmission of monetary policy and the rising importance of inequality in the broader policy discussion.

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Bank Capital in the Short and in the Long Run

Abstract: This paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB.

Cited by 11 publications

References 41 publications

The Phillips Curve at the ECB

The Phillips Curve at the ECB

Recapitalization, Bailout, and Long-run Welfare in a Dynamic Model of Banking

Foreword ‒ The Crisis, Ten Years After: Lessons Learnt for Monetary and Financial Research

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