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Macroeconomic Costs of Higher Bank Capital and Liquidity Requirements

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  • Scott Roger
  • Jan Vlcek

Abstract

This paper uses a DSGE model with banks and financial frictions in credit markets to assess the medium-term macroeconomic costs of increasing capital and liquidity requirements. The analysis indicates that the macroeconomic costs of such measures are sensitive to the length of the implementation period as well as to the adjustment strategy used by banks, and the scope for monetary policy to respond to the regulatory changes.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/103.

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Length: 51
Date of creation: 01 May 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/103

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Keywords: Banking sector; Economic models; External shocks; capital adequacy; capital adequacy ratio; banking; bank capital; banks assets; dividend policy; payout ratio; dividend payout; government bonds; capital ratio; bank lending; bank responses; government securities; capital requirement; return on equity; bank assets; bank profits; capital accumulation; retained earnings; productive capital; bank loans; banking supervision; bank balance sheet; liquidity ratio; bank behavior; capital increases; bank balance sheets; capital goods; transmission of monetary policy; capital markets; bank portfolios; bank liquidity; bank holdings; bank shareholders; accounting framework; discount rates; bank collects; banking system; investment spending; bank lending rates; bank borrowing; capital needs; shareholder equity; bank dividends; banking capital; bank equities; banking stability; banking industry; banks ? assets; bank regulation; return on investment; credit market; bank for international settlements; indexation; capital adequacy ratios; bank branches; bank policy; equity capital; bank deposits;

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References

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  1. Matteo Iacoviello & Stefano Neri, 2010. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 125-64, April.
  2. Matteo Iacoviello, 2005. "House Prices, Borrowing Constraints, and Monetary Policy in the Business Cycle," American Economic Review, American Economic Association, vol. 95(3), pages 739-764, June.
  3. Calza, Alessandro & Monacelli, Tommaso & Stracca, Livio, 2007. "Mortgage Markets, Collateral Constraints, and Monetary Policy: Do Institutional Factors Matter?," CEPR Discussion Papers 6231, C.E.P.R. Discussion Papers.
  4. Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010. "Credit and banking in a DSGE model of the euro area," Temi di discussione (Economic working papers) 740, Bank of Italy, Economic Research and International Relations Area.
  5. William Francis & Matthew Osborne, 2009. "Bank regulation, capital and credit supply: Measuring the Impact of Prudential Standards," Occasional Papers 36, Financial Services Authority.
  6. Memmel, Christoph & Raupach, Peter, 2010. "How do banks adjust their capital ratios?," Journal of Financial Intermediation, Elsevier, vol. 19(4), pages 509-528, October.
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Citations

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Cited by:
  1. Francis Vitek & Scott Roger, 2012. "The Global Macroeconomic Costs of Raising Bank Capital Adequacy Requirements," IMF Working Papers 12/44, International Monetary Fund.
  2. Paolo Angelini & Laurent Clerc & Vasco Cúrdia & Leonardo Gambacorta & Andrea Gerali & Alberto Locarno & Roberto Motto & Werner Roeger & Skander Van den Heuvel & Jan Vlcek, 2011. "BASEL III: long-term impact on economic performance and fluctuations," Staff Reports 485, Federal Reserve Bank of New York.
  3. Peter J. Morgan & Victor Pontines, 2013. "An Asian Perspective on Global Financial Reforms," Finance Working Papers 23637, East Asian Bureau of Economic Research.
  4. Ivashchenko, S., 2013. "Dynamic Stochastic General Equilibrium Model with Banks and Endogenous Defaults of Firms," Journal of the New Economic Association, New Economic Association, vol. 19(3), pages 27-50.
  5. Dominic Quint & Pau Rabanal, 2013. "Monetary and Macroprudential Policy in an Estimated DSGE Model of the Euro Area," IMF Working Papers 13/209, International Monetary Fund.
  6. Chris Bloor & Rebecca Craigie & Anella Munro, 2012. "The macroeconomic effects of a stable funding requirement," Reserve Bank of New Zealand Discussion Paper Series DP2012/05, Reserve Bank of New Zealand.
  7. Fabia A. de Carvalho & Marcos R. Castro & Silvio M. A. Costa, 2013. "Traditional and Matter-of-fact Financial Frictions in a DSGE Model for Brazil: the role of macroprudential instruments and monetary policy," Working Papers Series 336, Central Bank of Brazil, Research Department.
  8. Federico GIRI, 2014. "Does Interbank Market Matter for Business Cycle Fluctuation? An Estimated DSGE Model with Financial Frictions for the Euro Area," Working Papers 398, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  9. Viktors Ajevskis & Kristine Vitola, 2011. "Housing and Banking in a Small Open Economy DSGE Model," Working Papers 2011/03, Latvijas Banka.

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