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Macroprudential Policy in a DSGE Model: anchoring the countercyclical capital buffer

Author

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  • Leonardo Nogueira Ferreira
  • Márcio Issao Nakane
Abstract
The 2007-8 world financial crisis highlighted the deficiency of the regulatory framework in place at the time. Thenceforth many papers have been assessing the introduction of macroprudential policy in a DSGE model. However, they do not focus on the choice of the variable to which the macroprudential instrument must respond - the anchor variable. In order to fulfil this gap, we input different macroprudential rules into the DSGE with a banking sector proposed by Gerali et al. (2010), and estimate its key parameters using Bayesian techniques applied to Brazilian data. We then rank the results using the unconditional expectation of lifetime utility as of time zero as the measure of welfare: the larger the welfare, the better the anchor variable. We find that credit growth is the variable that performs best.

Suggested Citation

  • Leonardo Nogueira Ferreira & Márcio Issao Nakane, 2015. "Macroprudential Policy in a DSGE Model: anchoring the countercyclical capital buffer," Working Papers, Department of Economics 2015_45, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2015wpecon45
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Divino, Jose Angelo & Haraguchi, Carlos, 2022. "Monetary Policy And Reserve Requirements In A Small Open Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 26(4), pages 1073-1106, June.
    2. Leonardo Nogueira Ferreira & Márcio Issao Nakane, 2018. "Macroprudential policy in a DSGE model: anchoring the countercyclical capital buffer," Economics Bulletin, AccessEcon, vol. 38(4), pages 2345-2352.
    3. Hinterschweiger, Marc & Khairnar, Kunal & Ozden, Tolga & Stratton, Tom, 2021. "Macroprudential policy interactions in a sectoral DSGE model with staggered interest rates," Bank of England working papers 904, Bank of England.
    4. Oscar Valencia & Daniel Osorio & Pablo Garay, 2017. "The role of capital requirements and credit composition in the transmission of macroeconomic and financial shocks," Revista ESPE - Ensayos Sobre Política Económica, Banco de la República, vol. 35(84), pages 203-221, December.
    5. Vinhado, Fernando da Silva & Divino, Jose Angelo, 2019. "Interactions between monetary and macroprudential policies in the transmission of discretionary shocks," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    6. Marcos R. Castro, 2019. "Sectoral Countercyclical Buffers in a DSGE Model with a Banking Sector," Working Papers Series 503, Central Bank of Brazil, Research Department.
    7. Li, Kexin & Chen, Zhongfei & Andrikopoulos, Athanasios, 2024. "Capital inflow liberalization and bank credit risk," Journal of International Money and Finance, Elsevier, vol. 142(C).

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    More about this item

    Keywords

    Macroprudential Policy; Basel III; Capital Buffer; Anchor Variable;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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