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Bank equity and macroprudential policy

Keqing Liu ()

Journal of Economic Dynamics and Control, 2016, vol. 73, issue C, 1-17

Abstract: This paper proposes an alternative macroprudential policy in the framework of Gertler et al. (2012). In their model, the central bank subsidizes bank outside equity, where the subsidy rate is determined by the shadow cost of the deposit. We find that the alternative rule in which the subsidy rate responds to the aggregate bank outside equity ratio is welfare improving because it has a better stabilization effect on the bank asset deterioration after a financial shock. We disentangle different channels through which macroprudential policies affect the economy and demonstrate that the better stabilization in the post-crisis economy has a positive effect on the economy in normal times through security prices.

Keywords: Macroprudential policy; Bank equity; DSGE model (search for similar items in EconPapers)
JEL-codes: C61 E44 E58 (search for similar items in EconPapers)
Date: 2016
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Working Paper: Bank Equity and Macroprudential Policy (2015) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:73:y:2016:i:c:p:1-17

DOI: 10.1016/j.jedc.2016.08.005

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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