Arbeitspapier

Macro Effects of Capital Requirements and Macroprudential Policy

I investigate macro effects of higher bank capital requirements on the Norwegian economy and their use as a macroprudential policy instrument under Basel III. To this end, I develop a macroeconometric model where the capital adequacy ratio, lending rates, asset prices and credit interact with each other and with the real economy. The empirical results suggest that changes in capital requirements are primarily transmitted via lending rates to the other variables in the model. The proposed increases in capital requirements under Basel III are found to have significant effects especially on house prices and credit. I also derive optimal paths for the countercyclical capital buffer in response to various shocks. The buffer is found to equal its imposed ceiling of 2.5% in response to most of the shocks considered while its duration varies in the range of 1-12 quarters depending on the shock and its persistence.

ISBN
978-82-7553-709-4
Language
Englisch

Bibliographic citation
Series: Working Paper ; No. 2012/21

Classification
Wirtschaft
Model Evaluation, Validation, and Selection
Forecasting Models; Simulation Methods
Monetary Policy
Corporate Finance and Governance: Government Policy and Regulation
Subject
Basel III
capital requirements
macroprudential policy

Event
Geistige Schöpfung
(who)
Akram, Q. Farooq
Event
Veröffentlichung
(who)
Norges Bank
(where)
Oslo
(when)
2012

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Akram, Q. Farooq
  • Norges Bank

Time of origin

  • 2012

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