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Regulatory Collateral Requirements and Delinquency Rate in a Two-Agent New Keynesian Model

Author

Listed:
  • Aicha Kharazi

    (Free University of Bozen-Bolzano, Italy)

  • Francesco Ravazzolo

    (BI Norwegian Business School, Norway; Free University of Bozen-Bolzano, Italy; Rimini Centre for Economic Analysis)

Abstract

In light of the high levels of systemic risks and the elevated probability of a crisis occurring, understanding the effectiveness of macro-prudential policies is becoming increasingly crucial. We incorporate a collateral-based macro-prudential policy into a two-agent New Keynesian model, this policy adjusts counter-cyclically to the state of the borrowing sector. We show that regulators accommodate high delinquency rates by allowing for tighter collateral requirements. An active macro-prudential policy amplifies the impact of a monetary policy shock on output and labor supply, and this policy emerges as a potential tool to prevent the risk of delinquency in the short run.

Suggested Citation

  • Aicha Kharazi & Francesco Ravazzolo, 2023. "Regulatory Collateral Requirements and Delinquency Rate in a Two-Agent New Keynesian Model," Working Paper series 23-03, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:23-03
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    References listed on IDEAS

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    More about this item

    Keywords

    macro prudential policies; credit supply; collateral constraint; monetary 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
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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