Capital Regulation in a Macroeconomic Model with Three Layers of Default

Javier Suarez, Alexis Derviz (), Kalin Nikolov, Laurent Clerc, Caterina Mendicino, Livio Stracca, Alexandros Vardoulakis and Stéphane Moyen

No 10316, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We develop a dynamic general equilibrium model for the positive and normative analysis of macroprudential policies. Optimizing financial intermediaries allocate their scarce net worth together with funds raised from saving households across two lending activities, mortgage and corporate lending. For all borrowers (households, firms, and banks) external financing takes the form of debt which is subject to default risk. This "3D model" shows the interplay between three interconnected net worth channels that cause financial amplification and the distortions due to deposit insurance. We apply it to the analysis of capital regulation.

Keywords: Default risk; Financial frictions; Macroprudential policy (search for similar items in EconPapers)
JEL-codes: E3 E44 G01 G21 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-rmg
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Citations: View citations in EconPapers (26)

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Related works:
Journal Article: Capital Regulation in a Macroeconomic Model with Three Layers of Default (2015)
Working Paper: Capital regulation in a macroeconomic model with three layers of default (2015)
Working Paper: Capital Regulation in a Macroeconomic Model with Three Layers of Default (2015)
Working Paper: Capital Regulation in a Macroeconomic Model with Three Layers of Default (2014)
Working Paper: Capital Regulation in a Macroeconomic Model with Three Layers of Default (2014)
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