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Credit Spreads, Financial Crises, and Macroprudential Policy

Author

Listed:
  • Ozge Akinci
  • Albert Queralto

Abstract

Credit spreads display occasional spikes and are more strongly countercyclical in times of elevated financial stress. Financial crises are extreme cases of this nonlinear behavior, featuring skyrocketing credit spreads, sharp losses in bank equity, and deep recessions. We develop and estimate a macroeconomic model with a banking sector in which banks' leverage constraints are occasionally binding and equity issuance is endogenous. The model captures the nonlinearities in the data and produces quantitatively realistic crises. Banks' precautionary equity issuance makes crises infrequent but does not prevent them altogether. A macroprudential policy inducing banks to issue more equity has considerable welfare benefits.

Suggested Citation

  • Ozge Akinci & Albert Queralto, 2022. "Credit Spreads, Financial Crises, and Macroprudential Policy," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(2), pages 469-507, April.
    • Handle: RePEc:aea:aejmac:v:14:y:2022:i:2:p:469-507
    DOI: 10.1257/mac.20180059
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    Citations

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    Cited by:

    1. Júlio, Paulo & Maria, José R., 2024. "The magnifying role of the banking sector during depressions," Journal of Macroeconomics, Elsevier, vol. 79(C).
    2. Das, Kuntal K. & Donald, Logan J. & Guender, Alfred V., 2023. "Debt finance and economic activity in the euro-area: evidence on asymmetric and maturity effects," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 448-472.
    3. Aicha Kharazi & Francesco Ravazzolo, 2023. "Regulatory Collateral Requirements and Delinquency Rate in a Two-Agent New Keynesian Model," Working Paper series 23-03, Rimini Centre for Economic Analysis.
    4. Kame Babilla, Thierry U., 2023. "Digital innovation and financial access for small and medium-sized enterprises in a currency union," Economic Modelling, Elsevier, vol. 120(C).
    5. Arsenii Mishin, 2023. "Dynamic Bank Capital Regulation in the Presence of Shadow Banks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 965-990, December.
    6. Mohamed Ben Alaya & Ahmed Kebaier & Djibril Sarr, 2024. "Credit Spreads' Term Structure: Stochastic Modeling with CIR++ Intensity," Papers 2409.09179, arXiv.org.
    7. Benjamin Musiita & Frederick Nsambu Kijjambu, 2024. "Intersecting Dynamics: The Influence of Macroeconomic Factors and Financial Development on Interest Rate Spreads in Uganda," Journal of Economics and Behavioral Studies, AMH International, vol. 16(2), pages 1-14.
    8. von Campe, Roland, 2024. "Unconventional monetary policy, financial frictions, and the equity tandem," Journal of Macroeconomics, Elsevier, vol. 79(C).

    More about this item

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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