Capital Regulation in a Macroeconomic Model with Three Layers of Default

Abstract

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 EconStor may AbstractWe develop a dynamic general equilibrium model for the positive and normative analysis of macroprudential policies. Optimizing financial intermediaries allocate their scarce net worth together with funds raised from saving households across two lending activities, mortgage and corporate lending. For all borrowers (households, firms, and banks) external financing takes the form of debt which is subject to default risk. This "3D model" shows the interplay between three interconnected net worth channels that cause financial amplification and the distortions due to deposit insurance. We apply it to the analysis of capital regulation.

Challenges for Central Banks’ Macro Models

“…A more explicit recognition of default in both the …nancial and non-…nancial private sectors as in Clerc et al [46] is also an important avenue.…”

Capital Requirements, Risk Choice, and Liquidity Provision in a Business Cycle Model

“…Recently, several papers study capital requirements in a quantitative environment; see for example Christiano and Ikeda (2013), Martinez-Miera and Suarez (2014), Corbae andD'Erasmo (2012), De Nicolò et al (2014), Clerc et al (2014), andNguyen (2014). A common feature of these papers is that a tightening of the constraint reduces the riskiness of the banking system but 9 it also reduces the amount of lending, which results in a lower GDP.…”

Conventional and unconventional monetary policy rules

“…While the approach taken here to modelling balance-sheet policies and credit subsidies is highly stylized, it provides a simple account of how the central bank can affect the interest rate paid by borrowers relative to the interest rate received by savers. Alternative approaches are based on the existence of a moral hazard problem between banks and depositors (Gertler and Karadi, 2011) or a costly state verification problem (Clerc, Derviz, Mendicino, Moyen, Nikolov, Stracca, Suarez and Vardoulakis, 2015). The central bank is not subject to these financial frictions, so it is able to affect interest rate spreads through asset purchases.…”