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Bubbly dynamics, frictional intermediation and policy analysis

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  • Liu, Yaoju
  • Wang, Chenxi

Abstract

We perform welfare analysis of time-varying capital requirement within a DNK model with rational asset bubbles. We show that the desired cyclicality of capital requirement and its interactive mechanism with monetary policy are both contingent on the roles of bubble assets in the economy.

Suggested Citation

  • Liu, Yaoju & Wang, Chenxi, 2024. "Bubbly dynamics, frictional intermediation and policy analysis," Economics Letters, Elsevier, vol. 234(C).
    • Handle: RePEc:eee:ecolet:v:234:y:2024:i:c:s0165176523005177
    DOI: 10.1016/j.econlet.2023.111491
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    References listed on IDEAS

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    1. Garcia Revelo, Jose D. & Levieuge, Grégory, 2022. "When could Macroprudential and Monetary Policies be in Conflict?," Journal of Banking & Finance, Elsevier, vol. 139(C).
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    3. Chenxi Wang, 2023. "Asset bubbles and frictional intermediation," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(3), pages 921-961, October.
    4. Gersbach, Hans & Rochet, Jean-Charles, 2017. "Capital regulation and credit fluctuations," Journal of Monetary Economics, Elsevier, vol. 90(C), pages 113-124.
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    6. Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010. "Credit and Banking in a DSGE Model of the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 107-141, September.
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    9. Jordi Gal?, 2014. "Monetary Policy and Rational Asset Price Bubbles," American Economic Review, American Economic Association, vol. 104(3), pages 721-752, March.
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    11. Paolo Angelini & Stefano Neri & Fabio Panetta, 2014. "The Interaction between Capital Requirements and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(6), pages 1073-1112, September.
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    More about this item

    Keywords

    Asset bubble; Bank; Macroprudential policy; Store of value; Collateral;
    All these keywords.

    JEL classification:

    • 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
    • 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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