Financial Crises and the Desirability of Macroprudential Policy

Ozge Akinci and Albert Queraltó
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Albert Queraltó: https://www.federalreserve.gov/econres/albert-queralto.htm

No 20170410, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: The global financial crisis has put financial stability risks?and the potential role of macroprudential policies in addressing them?at the forefront of policy debates. The challenge for macroeconomists is to develop new models that are consistent with the data while being able to capture the highly nonlinear nature of crisis episodes. In this post, we evaluate the impact of a macroprudential policy that has the government tilt incentives for banks to encourage them to build up their equity positions. The government has a role since individual banks do not internalize the systemic benefit of having more bank equity. Our model allows for an evaluation of the tradeoff between the size of such incentives and the probability of a future financial crisis.

Keywords: occasionally binding constraints; sudden stops; financial intermediation; financial stability policy; leverage constraints (search for similar items in EconPapers)
JEL-codes: E2 (search for similar items in EconPapers)
Date: 2017-04-10
New Economics Papers: this item is included in nep-mac
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