Managing risk taking with interest rate policy and macroprudential regulations

Arbeitspapier

We develop a model in which a financial intermediary's investment in risky assets - risk taking - is excessive due to limited liability and deposit insurance, and characterize the policy tools that implement efficient risk taking. In the calibrated model, coordinating interest rate policy with state-contingent macroprudential regulations - either capital or leverage regulation, and a tax on profits - achieves efficiency. Interest rate policy mitigates excessive risk taking, by altering the return and the supply of collateralizable safe assets. In contrast to commonly-used capital regulation, leverage regulation has stronger effects on risk taking and calls for higher interest rates.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Research Report ; No. 2016-6

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Monetary Policy ; Portfolio Choice; Investment Decisions ; General Financial Markets: Government Policy and Regulation
• Subject: Financial intermediation ; risk taking ; interest rate policy ; macroprudential regulations ; capital requirements ; leverage ratio

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Cociuba, Simona E. ; Shukayev, Malik ; Ueberfeldt, Alexander
• Event: Veröffentlichung
• (who): The University of Western Ontario, Department of Economics
• (where): London (Ontario)
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/175492
• Last update: 10.03.2025, 11:41 AM CET