Arbeitspapier

Macro-prudential policies, moral hazard and financial fragility

This paper presents a DSGE model with banks that face moral hazard in management. Banks receive demand deposits and fund investment projects. Banks are subject to potential withdrawals by depositors which may force them into early liquidation of their investments. The likelihood of this happening depends on the bank management efforts to keep the bank financially sound and the degree of bank leverage. We study the properties of this model under different monetary and macro-prudential policy arrangements. Our model is able to replicate the pro-cyclicality of leverage, and provides insights on the interplay between bank leverage and bank management incentives as a result of monetary, productivity and financial shocks. We find that a combination of pro-cyclical capital requirements and a standard monetary policy are well suited to contain the effects on output and prices of a downturn, keeping the financial system in check. Yet, in an expansionary phase (i.e. a productivity shock) this policy combination may produce desirable results for some macro-variables but at the expense of a deterioration in other macro-financial indicators.

Sprache
Englisch

Erschienen in
Series: Graduate Institute of International and Development Studies Working Paper ; No. HEIDWP06-2015

Klassifikation
Wirtschaft
Portfolio Choice; Investment Decisions
Technological Change: Choices and Consequences; Diffusion Processes
Economics of Contract: Theory
Thema
DSGE modeling
financial frictions
moral hazard
macro-prudential policies

Ereignis
Geistige Schöpfung
(wer)
Arango, Carlos A.
Valencia, Oscar M.
Ereignis
Veröffentlichung
(wer)
Graduate Institute of International and Development Studies
(wo)
Geneva
(wann)
2015

Handle
Letzte Aktualisierung
10.03.2025, 11:42 MEZ

Datenpartner

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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Arango, Carlos A.
  • Valencia, Oscar M.
  • Graduate Institute of International and Development Studies

Entstanden

  • 2015

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