Economics at your fingertips  

Capital regulation and credit fluctuations

Hans Gersbach () and Jean Rochet ()

Journal of Monetary Economics, 2017, vol. 90, issue C, 113-124

Abstract: Credit cycle stabilization can be a rationale for imposing counter-cyclical capital requirements on banks. The model comprises two productive sectors: in one sector, firms can finance investments through a bond market. In the other, firms rely on bank credit. Financial frictions limit banks’ borrowing capacity. Aggregate shocks impact firms’ productivity. From a welfare perspective, banks lend too much in high productivity states and too little in bad states, although financial markets are complete. Imposing a (stricter) capital requirement in good states corrects capital misallocation, increases expected output and social welfare. Even with risk-neutral agents, stabilization of credit cycles is socially beneficial.

Keywords: Credit fluctuations; Macroprudential regulation; Sectoral misallocation of capital (search for similar items in EconPapers)
JEL-codes: G21 G28 D86 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Capital Regulation and Credit Fluctuations (2012) Downloads
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:

Access Statistics for this article

Journal of Monetary Economics is currently edited by R. G. King and C. I. Plosser

More articles in Journal of Monetary Economics from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

Page updated 2019-06-10
Handle: RePEc:eee:moneco:v:90:y:2017:i:c:p:113-124