Capital Requirements and Business Cycles with Credit Market Imperfections
Pierre-Richard Agénor (),
Koray Alper and
Luiz Awazu Pereira da Silva ()
Centre for Growth and Business Cycle Research Discussion Paper Series from Economics, The University of Manchester
The business cycle effects of bank capital regulatory regimes are examined in a New Keynesian model with credit market imperfections and a cost channel of monetary policy. A key feature of the model is that bank capital increases incentives for banks to monitor borrowers, thereby reducing the probability of default. Basel I- and Basel II-type regulatory regimes are defined, and the model is calibrated for a middle-income country. Numerical simulations show that, depending on the elasticities that relate the repayment probability to its micro and macro determinants, and the elasticity of the risk weight (under Basel II) with respect to the repayment probability, Basel I may be more procyclical than Basel II in response to adverse supply and demand shocks.
Pages: 57 pages
New Economics Papers: this item is included in nep-ban, nep-bec, nep-mac, nep-reg and nep-rmg
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Journal Article: Capital requirements and business cycles with credit market imperfections (2012)
Working Paper: Capital Requirements and Business Cycles with Credit Market Imperfections (2011)
Working Paper: Capital requirements and business cycles with credit market imperfections (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:man:cgbcrp:124
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