Capital Regulation in a Macroeconomic Model with Three Layers of Default

63 Pages Posted: 3 Jan 2015

See all articles by Laurent Clerc

Laurent Clerc

Banque de France

Alexis Derviz

Czech National Bank (CNB) - Monetary Department

Caterina Mendicino

Bank of Portugal; European Central Bank (ECB) - Directorate General Research

Stephane Moyen

Deutsche Bundesbank - Research Centre

Kalin Nikolov

European Central Bank (ECB)

Livio Stracca

European Central Bank (ECB)

Javier Suarez

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Alexandros Vardoulakis

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: december 2014

Abstract

We develop a dynamic general equilibrium model for the positive and normative analysis of macroprudential policies. Optimizing financial intermediaries allocate their scarce net worth together with funds raised from saving households across two lending activities, mortgage and corporate lending. For all borrowers (households, firms, and banks) external financing takes the form of debt which is subject to default risk. This “3D model” shows the interplay between three interconnected net worth channels that cause financial amplification and the distortions due to deposit insurance. We apply it to the analysis of capital regulation.

Keywords: Macroprudential policy; Financial frictions; Default risk

JEL Classification: E3, E44, G01, G21

Suggested Citation

Clerc, Laurent and Derviz, Alexis and Mendicino, Caterina and Moyen, Stephane and Nikolov, Kalin and Stracca, Livio and Suarez, Javier and Vardoulakis, Alexandros, Capital Regulation in a Macroeconomic Model with Three Layers of Default (december 2014). Banque de France Working Paper No. 533. Available at SSRN: https://ssrn.com/abstract=2544607 or http://dx.doi.org/10.2139/ssrn.2544607

Laurent Clerc (Contact Author)

Banque de France ( email )

Paris
France

Alexis Derviz

Czech National Bank (CNB) - Monetary Department ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Caterina Mendicino

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Stephane Moyen

Deutsche Bundesbank - Research Centre ( email )

Wilhelm-Epstein-Str. 14
D-60431 Frankfurt/Main
Germany

Kalin Nikolov

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Livio Stracca

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
0049 69 13440 (Phone)
0044 69 1344 6000 (Fax)

Javier Suarez

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91 429 0551 (Phone)
+34 91 429 1056 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Alexandros Vardoulakis

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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