Capital requirements and business cycles with credit market imperfections

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

Journal of Macroeconomics, 2012, vol. 34, issue 3, 687-705

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. Bank capital increases incentives for banks to monitor borrowers, thereby raising the repayment probability, 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 a supply shock show that, depending on the elasticity that relates the repayment probability to the bank capital–loan ratio, the Basel II regime may be less procyclical than a Basel I regime.

Keywords: Capital requirements; Procyclicality; Credit market imperfections (search for similar items in EconPapers)
JEL-codes: E44 E51 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0164070412000341
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Capital Requirements and Business Cycles with Credit Market Imperfections (2011)
Working Paper: Capital Requirements and Business Cycles with Credit Market Imperfections (2009)
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:eee:jmacro:v:34:y:2012:i:3:p:687-705

DOI: 10.1016/j.jmacro.2012.02.007

Access Statistics for this article

Journal of Macroeconomics is currently edited by Douglas McMillin and Theodore Palivos

More articles in Journal of Macroeconomics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().