Macroprudential Policy in a DSGE Model: anchoring the countercyclical capital buffer

Leonardo Ferreira and Marcio Nakane

No 407, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: The 2007-8 world financial crisis highlighted the deficiency of the regulatory framework in place at the time. Thenceforth many papers have been assessing the introduction of macroprudential policy in a DSGE model. However, they do not focus on the choice of the variable to which the macroprudential instrument must respond - the anchor variable. In order to fulfil this gap, we input different macroprudential rules into the DSGE with a banking sector proposed by Gerali et al. (2010), and estimate its key parameters using Bayesian techniques applied to Brazilian data. We then rank the results using the unconditional expectation of lifetime utility as of time zero as the measure of welfare: the larger the welfare, the better the anchor variable. We find that credit growth is the variable that performs best.

Date: 2015-11
New Economics Papers: this item is included in nep-ban, nep-cba and nep-dge
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Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Macroprudential policy in a DSGE model: anchoring the countercyclical capital buffer (2018)
Working Paper: Macroprudential Policy in a DSGE Model: anchoring the countercyclical capital buffer (2015)
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