The Interaction between Capital Requirements and Monetary Policy

Angelini, Paolo; Neri, Stefano; Panetta, Fabio

doi:10.1111/jmcb.12134

Cited by 392 publications

(293 citation statements)

References 95 publications

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“…Our findings on Tinbergen's rule are consistent with results from studies comparing standard with augmented monetary policy rules by Angeloni and Faia (2013), Angelini et al (2014) and Quint and Rabanal (2014). Angeloni and Faia studied a model with bank runs and nominal rigidities driven by TFP shocks, quantifying the implications of monetary and bank capital rules with given coefficients.…”

supporting

confidence: 76%

“…For the financial authority, institutions such as the BIS and the IMF advocate the use of financial policy to counter financial instability (see IMF, 2013;Galati and Moessner, 2013). When studying this issue using DSGE models, financial policy is often formulated as targeting the credit-output ratio, credit growth, or the volatility of the credit spread, as in the model we proposed (see also Angelini et al (2014), Bodenstein et al (2014), De Paoli andPaustian (2017)). Again, given the model's structure, this makes sense because fluctuations in the credit spread create inefficient fluctuations in investment and output, and hence cause also welfare losses.…”

Section: Payoffs and Reaction Functionsmentioning

confidence: 99%

“…On the other hand, both Nash and Cooperative equilibria yield policies that are too tight relative to the welfare-maximizing first-best outcome. This paper is related to the recent quantitative literature using New Keynesian DSGE models with financial frictions to examine monetary and financial policy interactions, particularly the studies comparing cooperative and noncooperative outcomes by Angelini et al (2014), Bodenstein et al (2014), De Paoli andPaustian (2017) and Van der Ghote (2016). These papers adopt different formulations of financial frictions, financial policy instruments and exogenous shocks.…”

mentioning

confidence: 99%

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Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies

Carrillo

Mendoza²,

Nuguer

et al. 2017

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Inter-American Development Bank. This work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed.Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.http://www.iadb.org 2017 Abstract * Quantitative analysis of a New Keynesian model with the Bernanke-Gertler accelerator and risk shocks shows that violations of Tinbergen's Rule and strategic interaction between policymaking authorities undermine significantly the effectiveness of monetary and financial policies. Separate monetary and financial policy rules, with the latter subsidizing lenders to encourage lending when credit spreads rise, produce higher welfare and smoother business cycles than a monetary rule augmented with credit spreads. The latter yields a tight money-tight credit regime in which the interest rate responds too much to inflation and not enough to adverse credit conditions. Reaction curves for the choice of policy-rule elasticity that minimizes each authority's loss function given the other authority's elasticity are nonlinear, reflecting shifts from strategic substitutes to complements in setting policy-rule parameters. The Nash equilibrium is significantly inferior to the Cooperative equilibrium, both are inferior to a first-best outcome that maximizes welfare, and both produce tight money-tight credit regimes. JEL classifications: E44, E52, E58

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supporting

confidence: 76%

Section: Payoffs and Reaction Functionsmentioning

confidence: 99%

mentioning

confidence: 99%

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Tight Money-Tight Credit: Coordination Failure in the Conduct of Monetary and Financial Policies

Carrillo

Mendoza²,

Nuguer

et al. 2017

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“…Section 4 provides a more normative analysis of the ways through which countercyclical reserve requirements and time-varying provisioning rules should be formulated, independently and jointly, to address concerns arising from procyclicality and financial 6 See Basel Committee on Banking Supervision (2013,2014). 7 Recent contributions that have studied the performance of countercyclical capital rules in New Keynesian dynamic stochastic general equilibrium (DSGE) models include, among many others, Suh (2011), Agénor, Alper and Pereira da Silva (2013), de Resende et al (2013, Angelini, Neri and Panetta (2014), Rubio and Carrasco-Gallego (2014), and Clancy and Merola (2015). Some of these studies, as well as others, have also considered the combination of countercyclical capital rules with other macroprudential instruments.…”

mentioning

confidence: 99%

Reserve Requirements and Loan Loss Provisions as Countercyclical Macroprudential Instruments: A Perspective from Latin America

Silva¹,

Agénor²

2016

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work is licensed under a Creative Commons IGO 3.0 AttributionNonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/ legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed.Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.http://www.iadb.org 2016 Abstract * This paper discusses, from an analytical and operational perspective, the use of reserve requirements and loan loss provisions as countercyclical macroprudential instruments. In recent years both of these instruments have been used extensively in Latin America and elsewhere in the world. The first part of the paper sets the stage with a discussion of the rationale, in the presence of financial frictions, for using macroprudential regulation to mitigate financial system procyclicality. The second part reviews the general arguments, as well as the recent empirical evidence for Latin America, associated with the use of reserve requirements and loan loss provisions. The third part provides a normative analysis of the ways through which countercyclical reserve requirements and cyclically adjusted (or, more commonly called, dynamic) provisioning rules should be formulated, independently and jointly, to address concerns arising from procyclicality and financial volatility. Optimal countercyclical rules are discussed from the perspective of how these rules can either minimize a composite measure of economic volatility (combining measures of both macroeconomic and financial volatility) or maximize social welfare. The last part brings together the lessons for policymakers that can be drawn from the analysis. JEL classifications: E51, E58, G28

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“…This result is consistent with the …ndings of Ireland (2011) who, in a very di¤erent framework to this model, reaches the same conclusion, but also shows that IOR a¤ects deposits and the monetary base without directly a¤ecting the long-run market rate. 4 The remaining of the paper is structured as follows. Section 2 develops the main macro model, including the …nancial contract between …rms and the bank.…”

Section: Introductionmentioning

confidence: 99%