Financial (in)stability, supervision and liquidity injections: a dynamic general equilibrium approach
Grégory de Walque,
Olivier Pierrard and
Abdelaziz Rouabah ()
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Abdelaziz Rouabah: Central Bank of Luxembourg
No 148, Working Paper Research from National Bank of Belgium
This paper develops a dynamic stochastic general equilibrium model with interactions between an heterogeneous banking sector and other private agents. We introduce endogenous default probabilities for both firms and banks, and allow for bank regulation and liquidity injection into the interbankmarket. Our aim is to understand the importance of supervisory and monetary authorities to restore financial stability. The model is calibrated against real data and used for simulations. We show that liquidity injections reduce financial instability but have ambiguous effects on output fluctuations. The model also confirms the partial equilibrium literature results on the procyclicality of Basel II.
Keywords: DSGE; Banking sector; Default risk; Supervision; Money (search for similar items in EconPapers)
JEL-codes: E13 E20 G21 G28 (search for similar items in EconPapers)
Pages: 37 pages
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-reg
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Journal Article: Financial (In)Stability, Supervision and Liquidity Injections: A Dynamic General Equilibrium Approach (2010)
Working Paper: Financial (In)stability, Supervision and Liquidity Injections: A Dynamic General Equilibrium Approach (2009)
Working Paper: Financial (in)stability, supervision and liquidity injections: a dynamic general equilibrium approach (2009)
Working Paper: Financial (in)stability, supervision and liquidity injections: a dynamic general equilibrium approach (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:200810-23
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