The impact of a higher leverage ratio on the South African economy

Arbeitspapier

We employ a micro-founded and stock-and-flow-consistent model to study the impact of a higher leverage ratio on the South African economy. The model provides a rich representation of institutional balance sheets. The relationship between bank capital, risk-taking behaviour, lending spreads, and economic activity is highlighted. The financial accelerator mechanism operates through the balance sheets of all economic institutions. The introduction of a higher leverage ratio is likely to generate negative economic impacts in the short run. The negative gross domestic product effect is greatest if the financial sector reduces leverage by reducing the value of assets. The regulatory shock leads the sector to change its perception of risk, reducing the size of the money multiplier and increasing lending spreads. Higher regulatory requirements also affect the transmission of monetary policy. Effective monetary policy requires understanding how the financial sector is likely to meet new requirements and change its perceptions of risk.

Object Details

• ISBN: 978-92-9256-669-2
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WIDER Working Paper ; No. 2019/35

Classification and Topics

• Classification: Wirtschaft ; General Equilibrium and Disequilibrium: Financial Markets ; Computable and Other Applied General Equilibrium Models ; Financial Markets and the Macroeconomy ; Money and Interest Rates: Forecasting and Simulation: Models and Applications ; General Financial Markets: Government Policy and Regulation
• Subject: computable general equilibrium ; financial dynamics ; leverage ratio ; macroprudential ; stock-and-flow consistent ; South Africa

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Davies, Robert H. ; Harris, Laurence ; Makrelov, Konstantin
• Event: Veröffentlichung
• (who): The United Nations University World Institute for Development Economics Research (UNU-WIDER)
• (where): Helsinki
• (when): 2019

Further information

• DOI: doi:10.35188/UNU-WIDER/2019/669-2
• Handle: http://hdl.handle.net/10419/211265
• Last update: 10.03.2025, 11:42 AM CET