Capital regulation and monetary policy with fragile banks

Angeloni, Ignazio; Faia, Ester

doi:10.1016/j.jmoneco.2013.01.003

Cited by 397 publications

(357 citation statements)

References 18 publications

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“…Our findings on Tinbergen's rule are consistent with results from studies comparing standard with augmented monetary policy rules by Angeloni and Faia (2013), Angelini et al (2014) and Quint and Rabanal (2014). Angeloni and Faia studied a model with bank runs and nominal rigidities driven by TFP shocks, quantifying the implications of monetary and bank capital rules with given coefficients.…”

supporting

confidence: 85%

Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies

Carrillo

Mendoza²,

Nuguer

et al. 2017

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Inter-American Development Bank. This work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed.Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.http://www.iadb.org 2017 Abstract * Quantitative analysis of a New Keynesian model with the Bernanke-Gertler accelerator and risk shocks shows that violations of Tinbergen's Rule and strategic interaction between policymaking authorities undermine significantly the effectiveness of monetary and financial policies. Separate monetary and financial policy rules, with the latter subsidizing lenders to encourage lending when credit spreads rise, produce higher welfare and smoother business cycles than a monetary rule augmented with credit spreads. The latter yields a tight money-tight credit regime in which the interest rate responds too much to inflation and not enough to adverse credit conditions. Reaction curves for the choice of policy-rule elasticity that minimizes each authority's loss function given the other authority's elasticity are nonlinear, reflecting shifts from strategic substitutes to complements in setting policy-rule parameters. The Nash equilibrium is significantly inferior to the Cooperative equilibrium, both are inferior to a first-best outcome that maximizes welfare, and both produce tight money-tight credit regimes. JEL classifications: E44, E52, E58

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confidence: 85%

Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies

Carrillo

Mendoza²,

Nuguer

et al. 2017

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“…Darracq-Pariés et al (2011) estimate a DSGE model with financial frictions affecting both households and firms using the euro area data, concluding that a countercyclical bank capital regulation can provide a strong support to macroeconomic stabilization, but also lead to excessive volatility in bank balance sheets. Angeloni and Faia (2013) find that the best combination of monetary and macroprudential policies includes mildly anticyclical capital ratios and response of monetary policy to assets prices or bank leverage. However, none of the papers reviewed above discuss macroprudential policy in the context of a heterogeneous monetary union.…”

Section: Introductionmentioning

confidence: 95%

Macroprudential policy and imbalances in the euro area

Brzoza‐Brzezina

Kolasa

Makarski

2015

Journal of International Money and Finance

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Since its creation the euro area suffered from imbalances between its core and peripheral members. This paper checks whether macroprudential policy applied to the peripheral countries could contribute to providing more macroeconomic stability in this region. To this end we build a two-economy macrofinancial DSGE model and simulate the effects of macroprudential policies under the assumption of asymmetric shocks hitting the core and the periphery. We find that macroprudential policy is able to partly make up for the loss of independent monetary policy in the periphery. Moreover, LTV policy seems more efficient than regulating capital adequacy ratios. However, for the policies to be effective, they must be decentralized. Area-wide policy is almost ineffective in this respect. JEL: E32, E44, E58

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“…A growing literature also uses DSGE models to study the interactions between macro prudential regulation and monetary policy (see e.g. Angelini et al 2011, Agénor et al 2013, Angeloni & Faia 2013, Zilberman & Tayler 2014, Kannan et al 2012, Quint & Rabanal 2014, Ozkan & Unsal 2014 regulation. If firms are not able to sell their goods, they can go bankrupt and default on their loans, possibly triggering a banking crisis.…”

Section: Introductionmentioning

confidence: 99%

Taming macroeconomic instability: Monetary and macro-prudential policy interactions in an agent-based model

Popoyan

Napoletano

Roventini

2017

Journal of Economic Behavior & Organization

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe develop an agent-based model to study the macroeconomic impact of alternative macro prudential regulations and their possible interactions with different monetary policy rules. The aim is to shed light on the most appropriate policy mix to achieve the resilience of the banking sector and foster macroeconomic stability. Simulation results show that a triplemandate Taylor rule, focused on output gap, inflation and credit growth, and a Basel III prudential regulation is the best policy mix to improve the stability of the banking sector and smooth output fluctuations. Moreover, we consider the different levers of Basel III and their combinations. We find that minimum capital requirements and counter-cyclical capital buffers allow to achieve results close to the Basel III first-best with a much more simplified regulatory framework. Finally, the components of Basel III are non-additive: the inclusion of an additional lever does not always improve the performance of the macro prudential regulation.

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Capital regulation and monetary policy with fragile banks

Cited by 397 publications

References 18 publications

Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies

Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies

Macroprudential policy and imbalances in the euro area

Taming macroeconomic instability: Monetary and macro-prudential policy interactions in an agent-based model

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