Credit Spreads, Financial Crises, and Macroprudential Policy

Ozge Akinci and Albert Queralto

American Economic Journal: Macroeconomics, 2022, vol. 14, issue 2, 469-507

Abstract: Credit spreads display occasional spikes and are more strongly countercyclical in times of elevated financial stress. Financial crises are extreme cases of this nonlinear behavior, featuring skyrocketing credit spreads, sharp losses in bank equity, and deep recessions. We develop and estimate a macroeconomic model with a banking sector in which banks' leverage constraints are occasionally binding and equity issuance is endogenous. The model captures the nonlinearities in the data and produces quantitatively realistic crises. Banks' precautionary equity issuance makes crises infrequent but does not prevent them altogether. A macroprudential policy inducing banks to issue more equity has considerable welfare benefits.

JEL-codes: E13 E32 E44 G01 G21 G28 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (10)

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DOI: 10.1257/mac.20180059

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