Countercyclical Prudential Tools in an Estimated DSGE Model

Serafin Frache, Javier García-Cicco and Jorge Ponce
Additional contact information
Javier García-Cicco: Banco Central de Chile y Universidad Católica Argentina
Authors registered in the RePEc Author Service: Javier Garcia Cicco

No 917, Documentos de Trabajo (working papers) from Department of Economics - dECON

Abstract: We develop a DSGE model for a small, open economy with a banking sector and endogenous default. The model is used to perform a realistic assessment of two macroprudential tools: countercyclical capital buffers (CCB) and dynamic provisions (DP). The model is estimated with data for Uruguay, where dynamic provisioning is in place since early 2000s. In general, while both tools force banks to build buffers, we find that DP seems to outperform the CCB in terms of smoothing the cycle. We also find that the source of the shock affecting the financial system matters to discuss the relative performance of both tools. In particular, given a positive external shock the ratio of credit to GDP decreases, which discourages its use as an indicator variable to activate countercyclical regulation.

Keywords: banking regulation; minimum capital requirement; countercyclical capital buffer; reserve requirement; (countercyclical or dynamic) loan loss provision; endogenous default; Basel III; DSGE; Uruguay (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2017-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cmp, nep-dge and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://hdl.handle.net/20.500.12008/19990 (application/pdf)

Related works:
Journal Article: Countercyclical prudential tools in an estimated DSGE model (2023)
Working Paper: Countercyclical prudential tools in an estimated DSGE model (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ude:wpaper:0917

Access Statistics for this paper

More papers in Documentos de Trabajo (working papers) from Department of Economics - dECON Contact information at EDIRC.
Bibliographic data for series maintained by Andrea Doneschi () and ().