Slow recoveries, endogenous growth and macroprudential policy

Dario Bonciani, David Gauthier and Derrick Kanngiesser ()
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Derrick Kanngiesser: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 917, Bank of England working papers from Bank of England

Abstract: Banking crises have severe short and long‑term consequences. We develop a general equilibrium model with financial frictions and endogenous growth in which macroprudential policy supports economic activity and productivity growth by strengthening bank’s resilience to adverse financial shocks. The improved intermediation capacity of a safer banking system leads to a higher steady state growth rate. The optimal bank capital ratio of 18% increases welfare by 6.7%, 14 times more than in the case without endogenous growth. When the economy enters a liquidity trap, the effects of financial disruptions and thus the benefits of macroprudential policy are even more significant.

Keywords: Slow recoveries; endogenous growth; financial stability; macroprudential policy (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 G01 G18 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2021-04-23
New Economics Papers: this item is included in nep-cba, nep-dge, nep-fdg, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Slow Recoveries, Endogenous Growth and Macro-prudential Policy (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0917

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