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Optimal banks behaviour and procyclicality

Author

Listed:
  • Chiara Pederzoli

    () (Department of Quantitative Methods, University of Milano Bicocca, Italy)

  • Costanza Torricelli

    (Department of Economics, University of Modena and Reggio Emilia, Italy)

Abstract

A relevant issue in the procyclicality debate over Basel II is the type of rating which could be preferred from both an individual and an economy-wide point of view in the light of the relation between capital requirements and the business cycle. The objective of the present paper is to evaluate the profitability of different rating systems within a general equilibrium approach in the presence of capital requirements consistent with Basel II. To this end, we model the optimizing behaviour of three sectors: households, corporates and banking sector and we analyse banks optimal behaviour and its effects on the economy as a whole.

Suggested Citation

  • Chiara Pederzoli & Costanza Torricelli, 2006. "Optimal banks behaviour and procyclicality," Computing in Economics and Finance 2006 349, Society for Computational Economics.
  • Handle: RePEc:sce:scecfa:349
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    More about this item

    Keywords

    Banks; Capital Requirements; Equilibrium analysis; Rating systems; Procyclicality;

    JEL classification:

    • D5 - Microeconomics - - General Equilibrium and Disequilibrium
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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