Risky bank lending and countercyclical capital buffers

Beneš, Jaromí­r; Kumhof, Michael

doi:10.1016/j.jedc.2015.06.005

Cited by 97 publications

(77 citation statements)

References 44 publications

(39 reference statements)

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“…With 3 = 0; G e r t ( ) reduces to the cost function used in Glocker and Towbin (2012), where the …rst term 1 (e r t & t ) captures any exogenous bene…ts of holding excess reserves, whereas the quadratic term, 2 ( ), captures the fact that bene…ts of excess reserves start decreasing after some level. 8 In addition, an innovation here is that I allow the bene…t of holding excess reserves to be endogenously determined by the degree of precautionary demand for liquidity. In particular, I assume that the underlying risk in the non-…nancial sector, t (" t ) can create 7 Hats denote log-linearisations from steady state.…”

Section: The Deposit Bankmentioning

confidence: 99%

“…In particular, I assume that the underlying risk in the non-…nancial sector, t (" t ) can create 7 Hats denote log-linearisations from steady state. 8 Glocker and Towbin (2012) use the Bernanke, Gertler and Gilchrist (1999) framework to show that when the loss function of the central bank incorporates a …nancial stability objective, the use of reserve requirements can lead to non-negligible welfare improvements. Their policy analysis focuses mainly on the e¤ects of the required reserve ratio, while the interest on reserves is assumed to be constant.…”

Section: The Deposit Bankmentioning

confidence: 99%

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Is the Growth Effect of Financial Development Conditional on Technological Innovation?

2013

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This paper examines the role of the precautionary demand for liquidity and the interest on reserves as two potential determinants of the deposits channel that can help explain the role of monetary policy, particularly at the near zero-bound. At high levels of precautionary liquidity hoarding the optimal policy response of a Taylor rule is shown to indicate a zero weight on in ‡ation. This result is explained by the e¤ect that the demand for liquidity has on the deposit rate which determines the intertemporal choices of households. Similarly, through its e¤ect on the deposits channel the interest on reserves can act as the main tool of monetary policy, that is shown to provide higher welfare gains in relation to a simple Taylor rule. This result is shown to hold at the zero-bound and it is independent of the precautionary demand for liquidity, or …scal theory of the price level properties. JEL Classi…cation Numbers: E31, E32, E44, E52, E50, G28

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Section: The Deposit Bankmentioning

confidence: 99%

Section: The Deposit Bankmentioning

confidence: 99%

Is the Growth Effect of Financial Development Conditional on Technological Innovation?

2013

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“…subject to, j t = P j;t Pt y j;t mc t y j;t and eqs (6)(7)(8)(9), where from the …rm's cost minimization problem real marginal cost is,…”

Section: Intermediate Goods Firmsmentioning

confidence: 99%

Credit Risk, Excess Reserves and Monetary Policy: The Deposits Channel

Bratsiotis

2018

SSRN Journal

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“…In particular, Angeloni and Faia (2013) integrate credit contracts in the style of Diamond and Rajan (2001) into a DSGE model to investigate the potential of cyclical bank capital regulation for macroeconomic stabilization. Benes and Kumhof (2015) modify the financial accelerator proposed in Bernanke et al (1999) by considering non-contingent financial contracts and explore the welfare properties of simple rules for capital adequacy regulation of banks. In a similar framework, Zhang (2009) discusses the effects of fixed regulatory bank capital ratios for the propagation of technology and monetary shocks.…”

Section: Introductionmentioning

confidence: 99%

“…First, while Angeloni and Faia (2013), Benes and Kumhof (2015), Zhang (2009) andClerc et al (2015) calibrate their models to the U.S. economy we estimate a model with endogenous interactions between credit default and bank balance sheets. 5 Second, we discuss the effects of the interaction between aggregate credit default risk and bank balance sheets by explicitly considering a number of macroeconomic shocks.…”

Section: Introductionmentioning

confidence: 99%

Unexpected loan losses and bank capital in an estimated DSGE model of the euro area

Hristov

Hülsewig

2017

Journal of Macroeconomics

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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. We develop a stylized DSGE model in which banks face capital regulation and their loan portfolios are subject to non-diversifiable losses due to aggregate shocks. The framework is used to explore the importance of the interaction between macroeconomic conditions, credit default and bank capitalization for the transmission of macroeconomic shocks. We fit the model to euro area data. Impulse response analysis shows that the aforementioned interaction substantially magnifies the responsiveness of the economy to real and nominal demand side disturbances. The amplification is especially strong with respect to government spending shocks. The model is further capable of replicating two financial market characteristics that are documented in the empirical literature, i.e. the pro-cyclicality of bank profitability and the counter-cyclical response of firm default rates and credit spreads to monetary policy shocks. Terms of use: Documents inJEL-Codes: E440, E510, G210, G330.

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Risky bank lending and countercyclical capital buffers

Cited by 97 publications

References 44 publications

Is the Growth Effect of Financial Development Conditional on Technological Innovation?

Is the Growth Effect of Financial Development Conditional on Technological Innovation?

Credit Risk, Excess Reserves and Monetary Policy: The Deposits Channel

Unexpected loan losses and bank capital in an estimated DSGE model of the euro area

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