Assessing the costs and benefits of capital-based macroprudential policy

Markus Behn, Marco Gross and Tuomas Peltonen ()

No 17, ESRB Working Paper Series from European Systemic Risk Board

Abstract: We develop an integrated Early Warning Global Vector Autoregressive (EW-GVAR) model to quantify the costs and benefits of capital-based macroprudential policy measures. Our findings illustrate that capital-based measures are transmitted both via their impact on the banking system’s resilience and via indirect macro-financial feedback effects. The feedback effects relate to dampened credit and asset price growth and, depending on how banks move to higher capital ratios, can account for up to a half of the overall effectiveness of capitalbased measures. Moreover, we document significant cross-country spillover effects, especially for measures implemented in larger countries. Overall, our model helps to understand how and through which channels changes in capitalization affect bank lending and the wider economy and can inform policy makers on the optimal calibration and timing of capital-based macroprudential instruments. JEL Classification: G01, G21, G28

Keywords: cost-benefit analysis; early-warning system; GVAR; macroprudential policy (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-ban
Note: 2203070
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Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Assessing the costs and benefits of capital-based macroprudential policy (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:201617

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