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Financial sector pro-cyclicality: lessons from the crisis

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Author Info
Fabio Panetta () (Bank of Italy)
Paolo Angelini () (Bank of Italy)
Ugo Albertazzi () (Bank of Italy)
Francesco Columba () (Bank of Italy)
Wanda Cornacchia () (Bank of Italy)
Antonio Di Cesare () (Bank of Italy)
Andrea Pilati () (Bank of Italy)
Carmelo Salleo () (Bank of Italy)
Giovanni Santini () (Bank of Italy)

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Abstract

We analyze the main forces affecting financial system pro-cyclicality (the fact that developments in the financial sector can amplify business cycle fluctuations). We first review some major structural developments in financial markets that may influence pro-cyclicality and that have been overlooked in earlier analyses. We then examine three issues that are center stage in the current debate: capital regulation, accounting standards and managers’ incentives. After reviewing the institutional set-up and the key mechanisms at work, we critically examine a series of proposals designed to mitigate pro-cyclicality.

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File URL: http://www.bancaditalia.it/pubblicazioni/econo/quest_ecofin_2/qf_44/QEF_44.pdf
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Publisher Info
Paper provided by Bank of Italy, Economic Research Department in its series Questioni di Economia e Finanza (Occasional Papers) with number 44.

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Date of creation: Apr 2009
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Handle: RePEc:bdi:opques:qef_44_09

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Web page: http://www.bancaditalia.it
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Related research
Keywords: pro-cyclicality; financial accelerator; capital requirements; leverage; accounting standards; incentives;

Find related papers by JEL classification:
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
G1 - Financial Economics - - General Financial Markets
G2 - Financial Economics - - Financial Institutions and Services
G3 - Financial Economics - - Corporate Finance and Governance
M4 - Business Administration and Business Economics; Marketing; Accounting - - Accounting

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  1. Luisa Carpinelli, 2009. "Real effects of banking crises: a survey of the literature," Questioni di Economia e Finanza (Occasional Papers) 55, Bank of Italy, Economic Research Department. [Downloadable!]
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This page was last updated on 2009-11-20.

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