Cyclical implications of changing bank capital requirements in a macroeconomic framework /

Cyclical implications of changing bank capital requirements in a macroeconomic framework /

Saved in:

Bibliographic Details
Author / Creator:	Catalán, Mario, 1972- author.
Imprint:	Washington, D.C. : International Monetary Fund, European Dept., ©2005.
Description:	1 online resource (35 pages) : illustrations.
Language:	English
Series:	IMF working paper ; WP/05/168 IMF working paper ; WP/05/168.
Subject:	Bank capital -- Econometric models. Business cycles -- Econometric models. Bank loans -- Econometric models. Bank capital -- Econometric models. Bank loans -- Econometric models. Business cycles -- Econometric models.
Format:	E-Resource Book
URL for this record:	http://pi.lib.uchicago.edu/1001/cat/bib/12498498

Hidden Bibliographic Details
Other authors / contributors:	Ganapolsky, Eduardo J. J., author. International Monetary Fund. European Department, issuing body.
ISBN:	1282631993 9781282631991 1462347819 9781462347810 1452752184 9781452752181 9786613822802 6613822809 1451907230 9781451907230
Notes:	Includes bibliographical references. English. Print version record.
Summary:	There is a widespread view that bank capital requirements should be loosened during recessions and tightened during expansions to avoid excessive credit and output swings. This view is based on a partial analysis that ignores the effects of capital requirement policies on the saving decisions of households, and, through this channel, on bank loans and output. We present an intertemporal general equilibrium framework that accounts for such effects and evaluate the optimal responses to loan supply and productivity (loan demand) shocks. In contrast to the standard view, we show that, when loan supply is reduced, increasing the capital requirement allows a faster recovery of households' savings, loans, and output than a flat capital requirement policy. When productivity (loan demand) is reduced, lowering the capital requirement facilitates households' dissaving and amplifies the output decline, but enhances welfare. Finally, we show that if productivity reductions are anticipated-rather than unanticipated-by regulators, lowering the capital requirement preemptively enhances welfare through greater intertemporal smoothing of households' consumption and deposit holdings.
Other form:	Print version: Catalán, Mario, 1972- Cyclical implications of changing bank capital requirements in a macroeconomic framework. Washington, D.C. : International Monetary Fund, European Dept., ©2005

Description
Summary:	There is a widespread view that bank capital requirements should be loosened during recessions and tightened during expansions to avoid excessive credit and output swings. This view is based on a partial analysis that ignores the effects of capital requirement policies on the saving decisions of households, and, through this channel, on bank loans and output. We present an intertemporal general equilibrium framework that accounts for such effects and evaluate the optimal responses to loan supply and productivity (loan demand) shocks. In contrast to the standard view, we show that, when loan supply is reduced, increasing the capital requirement allows a faster recovery of households' savings, loans, and output than a flat capital requirement policy. When productivity (loan demand) is reduced, lowering the capital requirement facilitates households' dissaving and amplifies the output decline, but enhances welfare. Finally, we show that if productivity reductions are anticipated-rather than unanticipated-by regulators, lowering the capital requirement preemptively enhances welfare through greater intertemporal smoothing of households' consumption and deposit holdings.
Physical Description:	1 online resource (35 pages) : illustrations.
Bibliography:	Includes bibliographical references.
ISBN:	1282631993 9781282631991 1462347819 9781462347810 1452752184 9781452752181 9786613822802 6613822809 1451907230 9781451907230