E-mail alert  |  Contact  
Search:       Go  
Background  |   Sponsoring institutions  |   Editorial board   |   Advisory board   |   Associate editors
Call for papers  |   Submission guidelines  |   Editorial process
Current issue  |   Past issues  |  
September 2013 issue
List of authors
 
Bénétrix, Lane
Gordy, Lütkebohmert
Verona, Martins, Drumond
Anzuini, Lombardi, Pagano
Jung
Agénor, Alper, Pereira da Silva
IJCB Home   Read the journal   Past issue
Past issues
2017
 
December
September
June
March
February
2016
 
December
September
June
March
2015
 
December
September
June
March
January
2014
 
December
September
June
March
2013
 
December
September
June
March
January
2012
 
December
September
June
March
January
2011
 
December
September
June
March
2010
 
December
September
June
March
2009
 
December
September
June
March
2008
 
December
September
June
March
2007
 
December
September
June
March
2006
 
December
September
June
March
2005
 
December
September
May

Capital Regulation, Monetary Policy, and Financial Stability

by Pierre-Richard Agénor, Koray Alper, and Luiz Pereira da Silva

Abstract

This paper examines the roles of bank capital regulation and monetary policy in mitigating procyclicality and promoting macroeconomic and financial stability. The analysis is based on a dynamic stochastic model with imperfect credit markets. Macroeconomic stability is defined in terms of a weighted average of inflation and output-gap volatility, whereas financial stability is defined in terms of three alternative indicators (real house prices, the credit-to-GDP ratio, and the loan spread), both individually and in combination. Numerical experiments associated with a housing demand shock show that in a number of cases, even if monetary policy can react strongly to inflation deviations from target, combining a credit-augmented interest rate rule and a Basel III-type countercyclical capital regulatory rule may be optimal for promoting overall economic stability. The greater the degree of policy interest rate smoothing, and the stronger the policymaker’s concern with financial stability, the larger is the sensitivity of the regulatory rule to credit growth gaps.

JEL Codes: E44, E51, F41.

 
Full article (PDF, 58 pages 1384 kb)

 


a University of Manchester and Centre for Growth and Business Cycle Research
b Central Bank of Turkey
c Central Bank of Brazil