Capital Regulation in a Macroeconomic Model with Three Layers of Default

58 Pages Posted: 23 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)

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: Default risk, Financial frictions, Macroprudential policy

JEL Classification: E3, E44, G01, G21

Suggested Citation

Clerc, Laurent and Derviz, Alexis and Mendicino, Caterina and Moyen, Stephane and Nikolov, Kalin, Capital Regulation in a Macroeconomic Model with Three Layers of Default (December 2014). CEPR Discussion Paper No. DP10316. Available at SSRN: https://ssrn.com/abstract=2554391

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

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