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Evaluating Macroprudential Policy with Financial Friction DSGE Model,” mimeo (2011)
| Citations: | 2 - 0 self |
BibTeX
@MISC{Suh11evaluatingmacroprudential,
author = {Hyunduk Suh},
title = {Evaluating Macroprudential Policy with Financial Friction DSGE Model,” mimeo},
year = {2011}
}
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Abstract
In general, macroprudential policy refers to a set of regulatory policy imposed mainly on financial institutions, for macroeconomic purposes. In this paper, I aim to provide a DSGE framework to assess issues regarding macroprudential policy. Based on New Keynesian setup, I embedded financial accelerator mechanism by Bernanke et al. (1999) in both business and household lending contract and designed bank capital func-tioning as a buffer stock. Then I evaluate the effectiveness of various macroprudential policy rules given different shocks, using a policy evaluation measure in terms of in-flation and output volatility. It turns out the target capital ratio reacting to output deviation performs the best, as it can reduce the volatility of inflation and output in most cases. LTV rule on household lending is in general not effective, as credit shifts away to the business sector.
Keyphrases
macroprudential policy financial friction dsge model household lending different shock business sector new keynesian setup bank capital func-tioning regulatory policy output deviation output volatility ltv rule macroeconomic purpose policy evaluation measure various macroprudential policy rule credit shift dsge framework buffer stock macroprudential policy refers household lending contract target capital ratio financial institution financial accelerator mechanism
