Macroprudential capital regulation in general equilibrium

Benjamin Nelson and Gabor Pinter

No 770, Bank of England working papers from Bank of England

Abstract: We examine macroprudential bank capital policy in a macroeconomic model with a financial accelerator originating in the banking sector. Under Ramsey-optimal policy, the bank capital buffer tracks closely a model-based measure of the credit gap, defined as the gap between equilibrium credit in the economy featuring financial frictions and that in a hypothetical frictionless economy. Simple rules that vary the capital buffer in response to the credit gap perform worse than Ramsey policy, but only modestly so. When monetary policy controls inflation less aggressively, optimal macroprudential responses are smaller. Optimal macroprudential policy operates at a lower frequency than monetary policy.

Keywords: Macroprudential policy; bank capital; monetary policy (search for similar items in EconPapers)
JEL-codes: E50 G20 (search for similar items in EconPapers)
Pages: 59 pages
Date: 2018-12-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0770

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