IDEAS home Printed from https://ideas.repec.org/p/rbp/wpaper/2020-012.html
   My bibliography  Save this paper

The Effects of Countercyclical Capital Buffers on Macroeconomic and Financial Stability

Author

Listed:
  • Pozo, Jorge

    (Banco Central de Reserva del Perú)

Abstract

We quantitatively study the effectiveness of several forms of countercyclical capital buffers on promoting macroeconomic and financial stability. To do this we introduce banks and a regulatory capital requirement rule to an open economy DSGE model. The capital requirement consists of a fixed part and a countercyclical part. We find that the tighter fixed capital requirements, the better able banks are to handle a financial crisis, but these also reduce long-term consumption and welfare. More importantly, countercyclical buffers that respond to deviation of the observed credit to GDP ratio from its long-term value, or to percentage deviation of the observed credit (or GDP) from its long-term value improve macroeconomic and financial stability and increase welfare. Being forward looking does not pay off. Interestingly, when buffers respond to percentage deviation of asset prices from their long-term values or to credit (or GDP) growth, macroeconomic and financial stability are negatively affected.

Suggested Citation

  • Pozo, Jorge, 2020. "The Effects of Countercyclical Capital Buffers on Macroeconomic and Financial Stability," Working Papers 2020-012, Banco Central de Reserva del Perú.
    • Handle: RePEc:rbp:wpaper:2020-012
    as

    Download full text from publisher

    File URL: https://www.bcrp.gob.pe/docs/Publicaciones/Documentos-de-Trabajo/2020/documento-de-trabajo-012-2020.pdf
    File Function: Application/pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Capital requirements; countercyclical buffers; financial stability; macroeconomic stability.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rbp:wpaper:2020-012. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Research Unit (email available below). General contact details of provider: https://edirc.repec.org/data/bcrgvpe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.