Modeling Two Macro Policy Instruments - Interest Rates and Aggregate Capital Requirements

Hans Gersbach and Volker Hahn

No 3598, CESifo Working Paper Series from CESifo

Abstract: We present a simple neoclassical model to explore how an aggregate bank-capital requirement can be used as a macroeconomic policy tool and how this additional tool interacts with monetary policy. Aggregate bank-capital requirements should be adjusted when the economy is hit by cost-push shocks but should not respond to demand shocks. Moreover, an optimal institutional structure is characterized as follows: First, monetary policy is delegated to an independent and conservative central banker. Second, setting aggregate bank-capital requirements is separated from monetary policy.

Keywords: central banks; banking regulation; capital requirements; optimal monetary policy (search for similar items in EconPapers)
JEL-codes: E52 E58 G28 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_3598

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