IDEAS home Printed from https://ideas.repec.org/p/fip/fednsr/802.html
   My bibliography  Save this paper

Credit spreads, financial crises, and macroprudential policy

Author

Listed:
  • Akinci, Ozge

    (Federal Reserve Bank of New York)

  • Queralto, Albert

    () (Board of Governors of the Federal Reserve System)

Abstract

Credit spreads display occasional spikes and are more strongly countercyclical in times of financial stress. Financial crises are extreme cases of this nonlinear behavior, featuring skyrocketing credit spreads, sharp losses in bank equity, and deep recessions. We develop a macroeconomic model with a banking sector in which banks’ leverage constraints are occasionally binding and equity issuance is endogenous. The model captures the nonlinearities in the data and produces quantitatively realistic crises. Precautionary equity issuance makes crises infrequent but does not prevent them altogether. When determining the intensity of capital requirements, the macroprudential authority faces a trade-off between the benefits of reducing the risk of a financial crisis and the welfare losses associated with banks’ constrained ability to finance risky capital investments..

Suggested Citation

  • Akinci, Ozge & Queralto, Albert, 2016. "Credit spreads, financial crises, and macroprudential policy," Staff Reports 802, Federal Reserve Bank of New York, revised 01 Apr 2017.
  • Handle: RePEc:fip:fednsr:802
    as

    Download full text from publisher

    File URL: https://www.newyorkfed.org/research/staff_reports/sr802.html
    File Function: Summary
    Download Restriction: no

    File URL: https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr802.pdf?la=en
    File Function: Full text
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eee:inecon:v:114:y:2018:i:c:p:362-375 is not listed on IDEAS
    2. Akıncı, Özge & Chahrour, Ryan, 2018. "Good news is bad news: Leverage cycles and sudden stops," Journal of International Economics, Elsevier, vol. 114(C), pages 362-375.

    More about this item

    Keywords

    financial intermediation; sudden stops; leverage constraints; occasionally binding constraints; financial stability policy;

    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
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fednsr:802. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Amy Farber). General contact details of provider: http://edirc.repec.org/data/frbnyus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.