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Capital Adequacy Requirements and Financial Frictions in a Neoclassical Growth Model

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  • Miho Sunaga

    () (Graduate School of Economics, Osaka University)

Abstract

I introduce nancial market friction into a neoclassical growth model. I consider a moral hazard problem between bankers and workers in the macroeconomic model. Using the model, this study analyzes how capital adequacy requirements for banks affect the economy. I show that strengthening capital adequacy requirements is desirable for an economy whose nancial market has not developed sufficiently. Regulatory authorities should pull up the minimum capital adequacy ratio in a country whose nancial market has not developed sufficiently. Moreover, there is no need to change the minimum cap- ital adequacy ratio in a country whose nancial market has developed sufficiently even if the economy experiences a recession.

Suggested Citation

  • Miho Sunaga, 2017. "Capital Adequacy Requirements and Financial Frictions in a Neoclassical Growth Model," Discussion Papers in Economics and Business 17-21, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  • Handle: RePEc:osk:wpaper:1721
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    File URL: http://www2.econ.osaka-u.ac.jp/library/global/dp/1721.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital adequacy requirements; Economic Growth; Financial Intermedi- aries; Macro-prudential policies;

    JEL classification:

    • 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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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