Assessing the costs and benefits of capital-based macroprudential policy
Tuomas Peltonen (),
Marco Gross and
No 1935, Working Paper Series from European Central Bank
We develop an integrated Early Warning Global Vector Autoregressive (EW-GVAR) model to quantify the costs and benefits of capital-based macroprudential policy measures. Our findings illustrate that capital-based measures are transmitted both via their impact on the banking system's resilience and via indirect macro-financial feedback effects. The feedback effects relate to dampened credit and asset price growth and, depending on how banks move to higher capital ratios, can account for up to a half of the overall effectiveness of capital- based measures. Moreover, we document significant cross-country spillover effects, especially for measures implemented in larger countries. Overall, our model helps to understand how and through which channels changes in capitalization affect bank lending and the wider economy and can inform policy makers on the optimal calibration and timing of capital-based macroprudential instruments. JEL Classification: G01, G21, G28
Keywords: cost-benefit analysis; early-warning system; GVAR; macroprudential policy (search for similar items in EconPapers)
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Working Paper: Assessing the costs and benefits of capital-based macroprudential policy (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20161935
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