Interaction Between Monetary Policy and Regulatory Capital Requirements

David Miles and Chuan Du

No 10200, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Banks? behaviour can be influenced by both monetary policy and regulatory capital requirements. This paper explores the interaction between these two policy tools in promoting better lending decisions by banks. We develop and calibrate a model of bank lending to examine what an optimal combination of monetary policy and regulatory capital requirements might look like. We find that as prudential standards strengthen globally in the aftermath of the financial crises, it is likely that the that equilibrium level of central bank policy rates should be lower than they had been prior to the crisis.

Keywords: Macro prudential policy; Capital requirements; Monetary policy (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 G28 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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