Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-14T07:27:07.811Z Has data issue: false hasContentIssue false
  • English
  • Français

The Bank Capital Channel and Counter-Cyclical Prudential Regulation in a DSGE model

Published online by Cambridge University Press:  17 August 2016

Grégory Levieuge
Grégory Levieuge*
Affiliation:
Laboratoire d'économie d'Orléans, UMR CNRS 6221, Rue de Blois, B.P. 6739, Orléans Cedex 2. E-mail: [email protected]
Get access

Summary

This article proposes to insert a bank capital channel (BCC) in the theoretical framework proposed by Bernanke et al. (1999) (BGG), in order 1) to evaluate the mean features of the BCC and 2) to assess the benefits of a countercyclical prudential measure. In a costly state verification framework, banks are charged a financing premium on their external funds which depends on the structure of their balance sheets and which then fluctuates in a counter-cyclical way. This premium is lastly passed on to firms' credit conditions. Simulations confirm that shocks are more amplified than in the BGG model, and confirm the importance of the financial context for macroeconomic volatility. Given the effects of this channel and the ineffectiveness of monetary policy in a capital crunch context, the model finally allows a conclusive evaluation of the advantages associated with a preemptive and counter-cyclical prudential measure in a DSGE model to be made.

Résumé

Résumé

Cet article vise d'une part à modéliser le canal du capital bancaire dans la structure théorique de référence proposée par Bernanke et al. (1999). Dans un cadre de vérification coûteuse des résultats, les banques subissent une prime de financement externe endogène et contracyclique, qu'elles répercutent sur le coût du crédit accordé aux entreprises. Les simulations confirment que le modèle implique une amplification des chocs plus marquée que dans le modèle BGG. Elles confirment en outre l'importance du contexte financier, au sens où l' output et l'inflation sont d'autant plus sensibles aux chocs que les banques sont initialement faiblement capitalisées. Étant donnés les effets du canal du capital bancaire et l'inefficacité de la politique monétaire dans un contexte de capital crunch, le modèle permet d'autre part de procéder à une évaluation concluante des avantages liés à une mesure prudentielle préventive et contra-cyclique dans un modèle d'équilibre général dynamique.

Keywords

canal des fonds propres bancairespolitique monétairepolitique prudentielleprovisionnement dynamiqueE3E5G18Bank Capital ChannelMonetary PolicyPrudential RegulationDynamic ProvisioningE3E5G18
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 75 , Issue 4 , December 2009 , pp. 425 - 460
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 2009 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Altunbas, Y., Fazylov, O. and Molyneux, P. (2002). “Evidence on the Bank Lending Channel in Europe”, Journal of Banking and Finance (26), 2093–2110.Google Scholar
Andersen, M. and Subbaraman, R. (1996). “Share Prices and Investment”, Reserve Bank of Australia Research Discussion Paper, (9610).Google Scholar
Bardsen, G., Jansen, E. and Nyomen, R. (2002). “Testing the New Keynesian Phillips Curve”, in The Phillips Curve: New Theory and Evidence, Trade Union Institute for Economic Research, Stockholm.Google Scholar
Bernanke, B. and Gertler, M. (1999). “Monetary Policy and Asset Price Volatility”, in New Challenges for Monetary Policy, Federal Reserve Bank of Kansas City, Jackson Hole.Google Scholar
Bernanke, B., Gertler, M. and Gilchrist, S. (1999). “The Financial Accelerator in a Quantitative Business Cycle Framework”, Vol. 1, Handbook of Macroeconomics, Amsterdam: North-Holland, Chapter 21, 1341–1393.Google Scholar
Bikker, J. and Metzemakers, P. (2005), “Bank Provisioning Behaviour and Procycli-cality”, Journal of International Financial Markets, Institutions and Money (15), 141–157.Google Scholar
Blum, J. and Hellwig, M. (1995). “The Macroeconomic Implications of Capital Adequacy Requirements for Banks”, European Economic Review (39), 739–749.Google Scholar
Boldrin, M., Christiano, L. & Fisher, J. (2000). “Habit Persistence, Asset Returns and the Business Cycle”, Research Department Staff Report, Federal Reserve Bank of Minneapolis, (No. 280).Google Scholar
Borio, C., Furfine, C. & Lowe, P. (2001). “Procyclicality of the Financial System and Financial Stability : Issues and Policy Options”, BIS Papers (1), 1–57.Google Scholar
Caruana, J. (2003). “Banking Provisions and Asset Price Bubbles”, in Assei Prices Bubbles: The Implications for Monetary, Regulatory, and International Policies, edited by Hunter, W. Kaufman, G. and Pomerleano, M. MIT Press ed., Chapter 39, 538–546.Google Scholar
Chami, R.k Cosimano, T. (2001). “Monetary Policy with a Touch of Basel”, IMF Working Paper (No. 151).Google Scholar
Chen, N.-K. (2001). “Bank Net Worth, Asset Prices and Economic Activity”, Journal of Monetary Economics (48), 415–436.Google Scholar
Chirinko, R. and Schaller, H. (1996). “Bubbles, Fundamentals, and Investment: A Multiple Equation Testing Strategy”, Journal of Monetary Economics (38(1)), 47–76.Google Scholar
Commission Bancaire (2000). “Le Nouvel Accord de Bale sur les fonds propres”, Rapport Annuel, 157–172.Google Scholar
Ehrmann, M., Gambacorta, L., Martínez-Pagés, J., Sevestre, P. and Worms, A. (2001). “Financial Systems and the Role of Banks in Monetary Policy Transmission in the Euro Area”, ECB Working Paper (No. 105).Google Scholar
Estrella, A. and Fuhrer, J. (1998). “Dynamic Inconsistencies: Counterfactual Implications of a Class of Rational Expectations Models”, Federal Reserve Bank of Boston Working Paper (No. 98–5).Google Scholar
Fagan, G., Henry, J. and Mestre, R. (2001). “An Area-Wide Model (AWM) for the Euro Area”, European Central Bank Working Paper Series (No. 42).Google Scholar
Fernández de Lis, S., Martínez Pagés, J. and Saurina, J. (2000). “Credit Growth, Problem Loans and Credit Risk Provisioning in Spain”, Bank of Spain, Working Paper (No. 18).Google Scholar
Fuhrer, J. (1997). “The (Un)Importance of Forward-Looking Behavior in Price Setting”, Journal of Money, Credit and Banking (29), 338–50.Google Scholar
Fuhrer, J. (2000). “Habit Formation in Consumption and its Implications for Monetary-Policy Models”, American Economic Review (3(90)), 367–390.Google Scholar
Furfine, C. (2000). “Evidence on the Response of U.S. Banks to Changes in Capital Requirements”, BIS Working Papers (No. 88).Google Scholar
Gali, J. and Gertler, M. (1999). “Inflation Dynamics: A Structural Econometric Analysis”, Journal of Monetary Economics (44), 195–222.Google Scholar
Gali, J., Gertler, M. and Lopez Salido, D. (2001). “European Inflation Dynamics”, European Economic Review (45), 1237–1270.Google Scholar
Gropp, R., Vesela, J. and Vulpes, G. (2002). “Equity and Bond Market Signals as Leading Indicators of Bank Fragility”, ECB Working Paper (No. 150).Google Scholar
Hubbard, G., Kuttner, K. and Palia, D. (1999). “Are There « Bank Effects » in Borrowers’ Costs of Funds ? Evidence from a Matched Sample of Borrowers and Banks”, Federal Reserve Bank of New York Staff Reports (No. 78).Google Scholar
Jaudoin, O. (2001). « Une proposition pour améliorer la stabilité : le provisionnement dynamique », Bulletin de la Banque de France (95), 109–120.Google Scholar
Kishan, R. and Opiela, T. (2000). “Bank Size, Bank Capital and the Bank Lending Channel”, Journal of Money, Credit and Banking (32(1)), 121–141.Google Scholar
Krasa, S. & Villamil, A. (1992). “Monitoring the Monitor: An Incentive Structure for a Financial Intermediary”, Journal of Economic Theory (57), 197–221.Google Scholar
Levieuge, G. (2005). “Les banques comme vecteurs et amplificateurs des chocs financiers : le canal du capital bancaire”, Revue Economie Internationale (104), 65–95.Google Scholar
Levieuge, G. (2009). “A detailed appendix on « Bank Capital Channel and Counter-Cyclical Prudential Regulation in a DSGE model »”, Document de Recherche du LEO, Université d’Orléans (2009–02).Google Scholar
Lown, C. and Peristiani, S. (1996). “The Behavior of Consumer Loan Rates during the 1990 Credit Slowdown”, Journal of Banking and Finance (20), 1673–1694.Google Scholar
Matherat, S. (2003). « Normalisation comptable internationale et stabilité financière », Revue de la Stabilité Financière, Banque de France (2).Google Scholar
Meh, C. and Moran, K. (2003). “Bank Capital and Monetary Policy”, Paper presented at the Conference organized by the Bank of Canada, the Federal Reserve Bank of Cleveland, and the Swiss National Bank, Dynamic Models Useful for Policy, Bank of Canada, July 10–11.Google Scholar
Peek, J. and Rosengren, E. (1995). “The Capital Crunch: Neither a Borrower nor a Lender Be”, Journal of Money, Credit and Banking (27 (3)), 625–638.Google Scholar
Peek, J. and Rosengren, E. (1997). “The International Transmission of Financial Shocks: The Case of Japan”, The American Economic Review (87 (4)), 495–505.Google Scholar
Peek, J., Rosengren, E. and Tootell, G. (2000). “Identifying the Macroeconomic Effect of Loan Supply Shocks”, Federal Reserve of Bolton Working Paper (No. 2).Google Scholar
Sahuc, J.-G. (2002). “A Hybrid Monetary Policy Model: Evidence from the Euro Area”, Applied Economics Letters (9), 949–955.Google Scholar
Smets, F. and Wouters, R. (2002). “Openness, Imperfect Exchange Rate Pass-Through and Monetary Policy”, European Central Bank Working Paper (No. 128).Google Scholar
Sunirand, P. (2003). “The Role of Bank Capital and the Transmission Mechanism of Monetary Policy”, Financial Market Group Working Paper (No. 433).Google Scholar
Tease, W. (1993). “The Stock Market and Investment”, OECD Economic Studies (20), 41–63.Google Scholar
Townsend, R. (1979). “Optimal Contracts and Competitive Markets with Costly State Verification”, Journal of Economic Theory (21), 265–293.Google Scholar
Van Den Heuvel, J. (2002a). “The Bank Capital Channel of Monetary Policy”, The Wharton School, Univ. of Pennsylvania, mimeo.Google Scholar
Van Den Heuvel, S. (2002b). “Does Bank Capital Matter for Monetary Transmission?”, Federal Reserve Bank of New York Economic Policy Review (8 (1)), 259–265.Google Scholar