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The impact of a higher leverage ratio on the South African economy

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  • Rob Davies
  • Laurence Harris
  • Konstantin Makrelov

Abstract

We employ a micro-founded and stock-and-flow-consistent model to study the impact of a higher leverage ratio on the South African economy. The model provides a rich representation of institutional balance sheets. The relationship between bank capital, risk-taking behaviour, lending spreads, and economic activity is highlighted. The financial accelerator mechanism operates through the balance sheets of all economic institutions. The introduction of a higher leverage ratio is likely to generate negative economic impacts in the short run.

Suggested Citation

  • Rob Davies & Laurence Harris & Konstantin Makrelov, 2019. "The impact of a higher leverage ratio on the South African economy," WIDER Working Paper Series wp-2019-35, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:wp-2019-35
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    Cited by:

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    2. Shaun de Jager & Riaan Ehlers & Keabetswe Mojapelo & Pieter Pienaar, 2021. "Shortterm impacts and interaction of macroprudential policy tools," Working Papers 11020, South African Reserve Bank.

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    Keywords

    Computable general equilibrium; Financial dynamics; Leverage ratio; Stock and flow; Risk management;
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