Do Capital Adequacy Requirements Matter for Monetary Policy?

17 Pages Posted: 27 Oct 2008

See all articles by Stephen G. Cecchetti

Stephen G. Cecchetti

Brandeis International Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Lianfa Li

China International Capital Corporation

Multiple version iconThere are 2 versions of this paper

Abstract

Central bankers and financial supervisors can have conflicting goals. While monetary policymakers work to ensure sufficient lending activities as a foundation for high and stable economic growth, supervisors may limit banks lending capacities in order to prevent excessive risk taking. We show that, in theory, central bankers can avoid this potential conflict by adopting an interest rate strategy that takes accounts of capital adequacy requirements. Empirical evidence suggests that while policymakers at the Federal Reserve have adjusted their interest rate to neutralizing the procyclical impact of bank capital requirements, those in Germany and Japan have not.

Suggested Citation

Cecchetti, Stephen G. and Li, Lianfa, Do Capital Adequacy Requirements Matter for Monetary Policy?. Economic Inquiry, Vol. 46, Issue 4, pp. 643-659, October 2008. Available at SSRN: https://ssrn.com/abstract=1288868 or http://dx.doi.org/10.1111/j.1465-7295.2007.00085.x

Stephen G. Cecchetti (Contact Author)

Brandeis International Business School ( email )

415 South Street
Waltham, MA 02453
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
212-720-8629 (Phone)
212-720-2630 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Lianfa Li

China International Capital Corporation ( email )

28th Floor, China World Tower 2
No. 1 Jian Guo Men Wai Avenue
Beijing 100004
China

Register to save articles to
your library

Register

Paper statistics

Downloads
2
Abstract Views
466
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information