Capital requirements, bank behavior and monetary policy: A theoretical analysis with an empirical application to India
AbstractThe paper addresses the issue of monetary policy transmission through the banking sector in the presence of a bank capital regulation. A model of bank behavior is presented, which shows how a monetary policy shock affects both deposit and lending, in the short run (when equity capital is assumed to be fixed) as well as in the long run (when equity is endogenous). The analysis is extended to incorporate a salient feature of Basel II incorporating loans with differential risk weights. The findings are contrasted with those obtained under the 1988 Accord and the implications of the analysis are explored.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 17306.
Date of creation: Jul 2008
Date of revision:
Publication status: Published in Indian Economic Review 2.43(2008): pp. 205-338
Basel Accord; Bank equity; Credit risk; Monetary policy;
Other versions of this item:
- Saibal Ghosh, 2008. "Capital requirements, bank behavior and monetary policy: A theoretical analysis with an empirical application to India," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 43(2), pages 205-227, December.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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