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The Bank Capital Channel and Counter-Cyclical Prudential Regulation in a DGSE Model


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  • Gregory Levieuge

    (Laboratoire d'Economie d'Orléans, UMR CNRS 6221)


This article proposes to insert a bank capital channel (BCC) in the theoretical framework proposed by Bernanke et al. (1999) (BGG), in order 1) to evaluate the mean features of the BCC and 2) to assess the benefits of a countercyclical prudential measure. In a costly state verification framework, banks are charged a financing premium on their external funds which depends on the structure of their balance sheets and which then fluctuates in a counter-cyclical way. This premium is lastly passed on to firms’ credit conditions. Simulations confirm that shocks are more amplified than in the BGG model, and confirm the importance of the financial context for macroeconomic volatility. Given the effects of this channel and the ineffectiveness of monetary policy in a capital crunch context, the model finally allows a conclusive evaluation of the advantages associated with a preemptive and counter-cyclical prudential measure in a DGSE model to be made.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 2009042.

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Length: 36
Date of creation: 01 Dec 2009
Date of revision:
Handle: RePEc:ctl:louvre:2009042

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Keywords: Bank capital channel; monetary policy; prudential regulation; dynamic provisionning;

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Cited by:
  1. Pierre-Richard Agénor & K. Alper & Luiz A. Pereira da Silva, 2011. "Capital Regulation, Monetary Policy and Financial Stability," Working Papers Series, Central Bank of Brazil, Research Department 237, Central Bank of Brazil, Research Department.
  2. Badarau, Cristina & Levieuge, Grégory, 2011. "Assessing the effects of financial heterogeneity in a monetary union a DSGE approach," Economic Modelling, Elsevier, Elsevier, vol. 28(6), pages 2451-2461.
  3. Grégory Levieuge, 2010. "Commentaire : Effets de richesse : le cas français. Les effets de richesse importent moins que les effets de bilan," Économie et Statistique, Programme National Persée, Programme National Persée, vol. 438(1), pages 141-149.
  4. repec:hal:psewpa:halshs-00744047 is not listed on IDEAS
  5. Eleni Iliopulos & Thepthida Sopraseuth, 2011. "L'intermédiation financière dans l'analyse macroéconomique : le défi de la crise," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 11046, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.


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