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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]
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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 

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