Bank equity and macroprudential policy. (English) Zbl 1401.91410
Summary: This paper proposes an alternative macroprudential policy in the framework of Gertler et al. (2012). In their model, the central bank subsidizes bank outside equity, where the subsidy rate is determined by the shadow cost of the deposit. We find that the alternative rule in which the subsidy rate responds to the aggregate bank outside equity ratio is welfare improving because it has a better stabilization effect on the bank asset deterioration after a financial shock. We disentangle different channels through which macroprudential policies affect the economy and demonstrate that the better stabilization in the post-crisis economy has a positive effect on the economy in normal times through security prices.
MSC:
| 91B64 | Macroeconomic theory (monetary models, models of taxation) |
References:
| [1] | Admati, A.R., DeMarzo, P.M., Hellwig, M.F., Pfleiderer, P.C., 2011. Fallacies, irrelevant facts, and myths in the discussion of capital regulation: Why bank equity is not expensive. MPI Collective Goods Preprint, 2010-42. |
| [2] | Bianchi, J., Overborrowing and systemic externalities in the business cycle, Am. Econ.Rev., 101, 7, 3400, (2011) |
| [3] | Borio, C.; Zhu, H., Capital regulation, risk-taking and monetary policya missing link in the transmission mechanism?, J. Financ. Stab., 8, 4, 236-251, (2012) |
| [4] | Calomiris, C. W.; Kahn, C. M., The role of demandable debt in structuring optimal banking arrangements, Am. Econ. Rev., 497-513, (1991) |
| [5] | Campbell, J. Y., Inspecting the mechanisman analytical approach to the stochastic growth model, J. Monet. Econ., 33, 3, 463-506, (1994) |
| [6] | Coeurdacier, N.; Rey, H.; Winant, P., The risky steady state, Am. Econ. Rev., 398-401, (2011) |
| [7] | De Groot, O., Computing the risky steady state of DSGE models, Econ. Lett., 120, 3, 566-569, (2013) · Zbl 1284.91335 |
| [8] | Dewatripont, M.; Tirole, J., Macroeconomic shocks and banking regulation, J. Money Credit Bank., 44, s2, 237-254, (2012) |
| [9] | Elliott, D.J., 2011. An overview of macroprudential policy and countercyclical capital requirements. Unpublished manuscript, The Brookings Institution, p. 10. |
| [10] | Galati, G.; Moessner, R., Macroprudential policy a literature review, J. Econ. Surv., 27, 5, 846-878, (2013) |
| [11] | Gertler, M.; Karadi, P., A model of unconventional monetary policy, J. Monet. Econ., 58, 1, 17-34, (2011) |
| [12] | Gertler, M.; Kiyotaki, N., Financial intermediation and credit policy in business cycle analysis, Handb. Monet. Econ., 3, 3, 547-599, (2010) |
| [13] | Gertler, M.; Kiyotaki, N.; Queralto, A., Financial crises, bank risk exposure and government financial policy, J. Monet. Econ., 59, S17-S34, (2012) |
| [14] | Greenwood, J.; Hercowitz, Z.; Huffman, G. W., Investment, capacity utilization, and the real business cycle, Am. Econ. Rev., 402-417, (1988) |
| [15] | Guvenen, F., A parsimonious macroeconomic model for asset pricing, Econometrica, 77, 6, 1711-1750, (2009) · Zbl 1186.91101 |
| [16] | Hanson, S. G.; Kashyap, A. K.; Stein, J. C., A macroprudential approach to financial regulation, J. Econ. Perspect., 3-28, (2011) |
| [17] | Harimohan, R.; Nelson, B., How might macroprudential capital policy affect credit conditions?, Bank Engl. Q. Bull., Q3, (2012) |
| [18] | Kashyap, A. K.; Stein, J. C., Cyclical implications of the basel II capital standards, Econ. Perspect. Fed. Reserv. Bank Chic., 28, 1, 18-33, (2004) |
| [19] | Korinek, A., 2011. Systemic risk-taking: amplification effects, externalities, and regulatory responses. Networks Financial Institute Working Paper, 2011-WP, p. 13. |
| [20] | Lettau, M., Inspecting the mechanismclosed-form solutions for asset prices in real business cycle models, Econ. J., 113, 550-575, (2003) |
| [21] | Lorenzoni, G., Inefficient credit booms, Rev. Econ. Stud., 75, 3, 809-833, (2008) · Zbl 1141.91461 |
| [22] | Perotti, E., Suarez, J., 2009. Liquidity risk charges as a macroprudential tool. |
| [23] | Schmitt-Grohé, S.; Uribe, M., Solving dynamic general equilibrium models using a second-order approximation to the policy function, J. Econ. Dyn. Control, 28, 4, 755-775, (2004) · Zbl 1179.91132 |
| [24] | Stein, J. C., Monetary policy as financial stability regulation, Q. J. Econ., 127, 57-95, (2012) · Zbl 1400.91359 |
This reference list is based on information provided by the publisher or from digital mathematics libraries. Its items are heuristically matched to zbMATH identifiers and may contain data conversion errors. In some cases that data have been complemented/enhanced by data from zbMATH Open. This attempts to reflect the references listed in the original paper as accurately as possible without claiming completeness or a perfect matching.
