This paper simulates a macroprudential policy of reduction in capital requirements, in line with the measures promoted by macroprudential authorities to face the effects of the recent pandemic crisis on real economy. We do that in an otherwise standard DSGE model augmented with a housing sector and a macroprudential regulator. Results show that a regulatory intervention aiming at reducing capital requirements entails a deep and prolonged recession, worsening financial and macroeconomic stability. Overall, it follows that the effects could be opposite to those desired. Two channels lead to this outcome: the financial channel of interest rates on deposits and loans, and the real estate channel of housing prices

Effects of Releasing Capital Requirements: A DSGE Approach

Busato Francesco;Ferrara Maria;Galano Simona;Varlese Monica
2021-01-01

Abstract

This paper simulates a macroprudential policy of reduction in capital requirements, in line with the measures promoted by macroprudential authorities to face the effects of the recent pandemic crisis on real economy. We do that in an otherwise standard DSGE model augmented with a housing sector and a macroprudential regulator. Results show that a regulatory intervention aiming at reducing capital requirements entails a deep and prolonged recession, worsening financial and macroeconomic stability. Overall, it follows that the effects could be opposite to those desired. Two channels lead to this outcome: the financial channel of interest rates on deposits and loans, and the real estate channel of housing prices
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11367/99673
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact