The macroeconomic effects of bank capital requirement tightenings: Evidence from a narrative approach

Sandra Eickmeier, Benedikt Kolb and Esteban Prieto ()

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Bank capital regulations are intended to enhance financial stability in the long run, but may, in the meanwhile, involve costs for the real economy. To examine these costs we propose a narrative index of aggregate tightenings in regulatory US bank capital requirements from 1979 to 2008. Anticipation effects are explicitly taken into account and found to matter. In response to a tightening in capital requirements, banks temporarily reduce business and real estate lending, which temporarily lowers investment, consumption, housing activity and production. A decline in financial and macroeconomic risk helps sustain spending in the medium run. Monetary policy also cushions negative effects of capital requirement tightenings on the economy.

Keywords: Narrative Approach; Bank Capital Requirements; Local Projections (search for similar items in EconPapers)
JEL-codes: C32 E44 G18 G28 (search for similar items in EconPapers)
Pages: 74 pages
Date: 2018-09
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mac, nep-rmg and nep-ure
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Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Macroeconomic effects of bank capital regulation (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2018-42

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