Macro-prudential Policy on Liquidity: What Does a DSGE Model Tell Us?
Jagjit Chadha () and
Luisa Corrado ()
No 193, CEIS Research Paper from Tor Vergata University, CEIS
The financial crisis has led to the development of an active debate on the use of macro-prudential instruments for regulating the banking system, in particular for liquidity and capital holdings. Within the context of a micro-founded macroeconomic model, we allow commercial banks to choose their optimal mix of asset creation, apportioning this to either reserves or private sector loans. We examine the implications for quantities, relative non-financial and financial prices from standard macroeconomic shocks alongside shocks to the expected liquidity of banks and to the efficiency of the banking sector. We focus on the response by the monetary sector, in particular the optimal reserve-deposit ratio adopted by commercial banks. Overall we find some rationale for Basel III in providing commercial banks with an incentive to hold liquid assets, such as reserves, as this acts to limit the procyclicality of lending to the private sector.
Keywords: Liquidity; interest on reserves; policy instruments; Basel. (search for similar items in EconPapers)
JEL-codes: E31 E40 E51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
Date: 2011-05-02, Revised 2011-05-02
References: Add references at CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
ftp://www.ceistorvergata.it/repec/rpaper/RP193.pdf Main text (application/pdf)
Journal Article: Macro-prudential policy on liquidity: What does a DSGE model tell us? (2012)
Working Paper: Macro-prudential Policy on Liquidity: What does a DSGE Model tell us? (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:rtv:ceisrp:193
Ordering information: This working paper can be ordered from
CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
Access Statistics for this paper
More papers in CEIS Research Paper from Tor Vergata University, CEIS CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma. Contact information at EDIRC.
Series data maintained by Barbara Piazzi ().