Bank Leverage Shocks and the Macroeconomy: a New Look in a Data-Rich Environment
Jean-Stéphane Mésonnier () and
Dalibor Stevanovic ()
Cahiers de recherche from CIRPEE
The recent crisis has revealed the potentially dramatic consequences of allowing the build-up of an overstretched leverage of the financial system, and prompted proposals by bank supervisors to significantly tighten bank capital requirements as part of the new Basel 3 regulations. Although these proposals have been fiercely debated ever since, the empirical question of the macroeconomic consequences of shocks to banks’ leverage, be they policy induced or not, remains still largely unsettled. In this paper, we aim to overcome some longstanding identification issues hampering such assessments and propose a new approach based on a data-rich environment at both the micro (bank) level and the macro level, using a combination of bank panel regressions and macroeconomic factor models. We first identify bank leverage shocks at the micro level and aggregate them to an economy-wide measure. We then compute impulse responses of a large array of macroeconomic indicators to our aggregate bank leverage shock, using the new methodology developed by Ng and Stevanovic (2012). We find significant and robust evidence of a contractionary impact of an unexpected shock reducing the leverage of large banks.
Keywords: Bank capital ratios; macroeconomic fluctuations; panel; dynamic factor models (search for similar items in EconPapers)
JEL-codes: C23 C38 E32 E51 G21 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed
Downloads: (external link)
Working Paper: Bank leverage shocks and the macroeconomy: a new look in a data-rich environment (2012)
Working Paper: BANK LEVERAGE SHOCKS AND THE MACROECONOMY: A NEW LOOK IN A DATA-RICH ENVIRONMENT (2012)
Working Paper: Bank Leverage Shocks and the Macroeconomy: a New Look in a Data-Rich Environment (2012)
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:lvl:lacicr:1330
Access Statistics for this paper
More papers in Cahiers de recherche from CIRPEE Contact information at EDIRC.
Bibliographic data for series maintained by Manuel Paradis ().