Financial (in)stability, supervision and liquidity injections: a dynamic general equilibrium approach

Arbeitspapier

This paper develops a dynamic stochastic general equilibrium model with interactions between an heterogeneous banking sector and other private agents. We introduce endogenous default probabilities for both firms and banks, and allow for bank regulation and liquidity injection into the interbankmarket. Our aim is to understand the importance of supervisory and monetary authorities to restore financial stability. The model is calibrated against real data and used for simulations. We show that liquidity injections reduce financial instability but have ambiguous effects on output fluctuations. The model also confirms the partial equilibrium literature results on the procyclicality of Basel II.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: NBB Working Paper ; No. 148

Classification and Topics

• Classification: Wirtschaft ; General Aggregative Models: Neoclassical ; Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data) ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation
• Subject: DSGE ; Banking sector ; Default risk ; Supervision ; Money ; Bankenliquidität ; Geldpolitik ; Bankenaufsicht ; Basler Akkord ; Dynamisches Gleichgewicht ; Theorie ; OECD-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): de Walque, Gregory ; Pierrard, Olivier ; Rouabah, Abdelaziz
• Event: Veröffentlichung
• (who): National Bank of Belgium
• (where): Brussels
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/144361
• Last update: 10.03.2025, 11:44 AM CET