Regulatory Collateral Requirements and Delinquency Rate in a Two-Agent New Keynesian Model

Aicha Kharazi and Francesco Ravazzolo ()
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Francesco Ravazzolo: BI Norwegian Business School, Norway; Free University of Bozen-Bolzano, Italy; Rimini Centre for Economic Analysis

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Abstract: In light of the high levels of systemic risks and the elevated probability of a crisis occurring, understanding the effectiveness of macro-prudential policies is becoming increasingly crucial. We incorporate a collateral-based macro-prudential policy into a two-agent New Keynesian model, this policy adjusts counter-cyclically to the state of the borrowing sector. We show that regulators accommodate high delinquency rates by allowing for tighter collateral requirements. An active macro-prudential policy amplifies the impact of a monetary policy shock on output and labor supply, and this policy emerges as a potential tool to prevent the risk of delinquency in the short run.

Keywords: macro prudential policies; credit supply; collateral constraint; monetary policy (search for similar items in EconPapers)
JEL-codes: E32 E44 G21 (search for similar items in EconPapers)
Date: 2023-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-fdg and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:23-03

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