Credit spreads, financial crises, and macroprudential policy
Ozge Akinci () and
Albert Queralto ()
Additional contact information
Albert Queralto: Board of Governors of the Federal Reserve System
No 802, Staff Reports from Federal Reserve Bank of New York
Credit spreads display occasional spikes and are more strongly countercyclical in times of financial stress. Financial crises are extreme cases of this nonlinear behavior, featuring skyrocketing credit spreads, sharp losses in bank equity, and deep recessions. We develop a macroeconomic model with a banking sector in which banks’ leverage constraints are occasionally binding and equity issuance is endogenous. The model captures the nonlinearities in the data and produces quantitatively realistic crises. Precautionary equity issuance makes crises infrequent but does not prevent them altogether. When determining the intensity of capital requirements, the macroprudential authority faces a trade-off between the benefits of reducing the risk of a financial crisis and the welfare losses associated with banks’ constrained ability to finance risky capital investments..
Keywords: financial intermediation; sudden stops; leverage constraints; occasionally binding constraints; financial stability policy (search for similar items in EconPapers)
JEL-codes: E32 E44 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac, nep-mon and nep-opm
Date: 2016-11-01, Revised 2017-04-01
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
https://www.newyorkfed.org/research/staff_reports/sr802.html Summary (text/html)
https://www.newyorkfed.org/medialibrary/media/rese ... orts/sr802.pdf?la=en Full text (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:802
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Amy Farber ().