Capital requirements and business cycles with credit market imperfections

Pierre-Richard Agénor, Koray Alper and Luiz Awazu Pereira da Silva ()

No 5151, Policy Research Working Paper Series from The World Bank

Abstract: The business cycle effects of bank capital regulatory regimes are examined in a New Keynesian model with credit market imperfections and a cost channel of monetary policy. Key features of the model are that bank capital increases incentives for banks to monitor borrowers, thereby reducing the probability of default, and excess capital generates benefits in terms of reduced regulatory scrutiny. Basel I and Basel II-type regulatory regimes are defined, and the model is calibrated for a middle-income country. Simulations of supply and demand shocks show that, depending on the elasticity that relates the repayment probability to the capital-loan ratio, a Basel II-type regime may be less procyclical than a Basel I-type regime.

Keywords: Banks&Banking Reform; Debt Markets; Access to Finance; Economic Theory&Research; Emerging Markets (search for similar items in EconPapers)
Date: 2009-12-01
New Economics Papers: this item is included in nep-ban, nep-bec, nep-reg and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... ered/PDF/WPS5151.pdf (application/pdf)

Related works:
Journal Article: Capital requirements and business cycles with credit market imperfections (2012)
Working Paper: Capital Requirements and Business Cycles with Credit Market Imperfections (2011)
Working Paper: Capital Requirements and Business Cycles with Credit Market Imperfections (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:5151

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().