From risk to buffer: calibrating the positive neutral CCyB rate in the euro area

Luis Herrera, Mara Pirovano and Valerio Scalone

No 3075, Working Paper Series from European Central Bank

Abstract: This paper proposes a novel yet intuitive method for the calibration of the CCyB through the cycle in the euro area, including the positive neutral CCyB rate. The paper implements the Risk-to-Buffer framework by Couaillier and Scalone (2024) in both a DSGE and macro time series setting and proposes a calibration of the PN CCyB aimed to reduce the macroeconomic amplification of shocks occurring in an environment where risks are neither subdued nor elevated. The suggested positive neutral CCyB rates for the euro area are consistent across methodologies and robust to alternative specifications, ranging between 1% and 1.5%. The results also highlight the role of different shocks and sources of cyclical systemic risk for the calibration of the CCyB through the cycle. The flexibility of the method regarding the modeling tools, the selection of specific levels of risks as well as the choice of state variables and of exogenous shocks make it particularly suitable to be tailored to national specificities and policymakers’ preferences. JEL Classification: C32, E51, E58, G01

Keywords: capital requirements; countercyclical capital buffer; financial stability; macroprudential policy (search for similar items in EconPapers)
Date: 2025-07
New Economics Papers: this item is included in nep-cba, nep-eec and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253075

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