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Slow recoveries, endogenous growth and macroprudential policy

Author

Listed:
  • Bonciani, Dario

    (Bank of England)

  • Gauthier, David

    (Bank of England)

  • Kanngiesser, Derrick

    (Bank of England)

Abstract

Banking crises have severe short and long‑term consequences. We develop a general equilibrium model with financial frictions and endogenous growth in which macroprudential policy supports economic activity and productivity growth by strengthening bank’s resilience to adverse financial shocks. The improved intermediation capacity of a safer banking system leads to a higher steady state growth rate. The optimal bank capital ratio of 18% increases welfare by 6.7%, 14 times more than in the case without endogenous growth. When the economy enters a liquidity trap, the effects of financial disruptions and thus the benefits of macroprudential policy are even more significant.

Suggested Citation

  • Bonciani, Dario & Gauthier, David & Kanngiesser, Derrick, 2021. "Slow recoveries, endogenous growth and macroprudential policy," Bank of England working papers 917, Bank of England.
    • Handle: RePEc:boe:boeewp:0917
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    Cited by:

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    2. Mikhail I. Stolbov & Maria A. Shchepeleva & Alexander M. Karminsky, 2021. "A global perspective on macroprudential policy interaction with systemic risk, real economic activity, and monetary intervention," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 7(1), pages 1-25, December.

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    More about this item

    Keywords

    Slow recoveries; endogenous growth; financial stability; macroprudential policy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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