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Do Capital Adequacy Requirements Matter for Monetary Policy
Stephen G. Cecchetti,Lianfa Li +1 more
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TL;DR: In this article, the authors derive an optimal monetary policy that reinforces prudential capital requirements at the same time that it stabilizes aggregate economic activity, and show that policymakers at the Federal Reserve adjust interest rate policy in a way that would neutralize the procyclical impact of bank capital requirements.
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Abstract: Central bankers and financial supervisors often have different goals While monetary policymakers want to ensure that there are always sufficient lending activities to maintain high and stable economic growth, supervisors work to limit banks lending capacities in order to prevent excessive risk-taking To avoid working at cross-purposes, central bankers need to adopt a policy strategy that accounts for the impact of capital adequacy requirements In this paper we derive an optimal monetary policy that reinforces prudential capital requirements at the same time that it stabilizes aggregate economic activity We go on to show that policymakers at the Federal Reserve adjust interest rate policy in a way that would neutralize the procyclical impact of bank capital requirements By contrast, central bankers in Germany and Japan clearly do not act as the theory suggests they should
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A Tale of Two Policies: Prudential Regulation and Monetary Policy with Fragile Banks
Ignazio Angeloni,Ester Faia +1 more
TL;DR: In this paper, the role of banks in the transmission of shocks, the effects of monetary policy when banks are exposed to runs, and the interplay between monetary policy and Basel-like capital ratios.
Should monetary policy lean against the wind? An analysis based on a DSGE model with banking
TL;DR: In this article, the authors evaluate whether Taylor rules augmented with asset prices, credit or bank leverage, can improve upon a standard rule in terms of macroeconomic stabilization in a DSGE with both a firms' balance-sheet channel and a bank-lending channel and in which the spread between lending and policy rates endogenously depends on banks' leverage.
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Do Capital Adequacy Requirements Matter for Monetary Policy
Stephen G. Cecchetti,Lianfa Li +1 more
TL;DR: In this article, an optimal monetary policy rule was derived in both a static and a dynamic model where the potential procyclicality of capital requirements was embedded, and the simulation results showed that while monetary policymakers in the United States behave as the theory suggests, lowering interest rates by more in downturns in which the banking system is under stress, by contrast, central bankers in Germany and Japan do not.
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When Capital Adequacy and Interest Rate Policy are Substitutes (and When They are Not)
TL;DR: In this paper, the authors use a simple macroeconomic model to study the extent to which capital adequacy requirements and interest rates might be substitutes in meeting the objective of stabilizing the economy.
150
Capital regulation, heterogeneous monitoring costs, and aggregate loan quality
TL;DR: In this article, the authors developed a banking-sector framework with heterogeneous loan monitoring costs, and examined several cases in which regulatory capital requirements bind the notional loan supplies of various subsets of banks.
108
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Mortgage Lending
- 01 Jan 2001
TL;DR: In this paper, the authors proposed a preferential risk weight of 50% for commercial mortgage lending, which is applicable to lending of up to the lower 50% of market value or 60% of the loan-to-value ratio.
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