Macroprudential Regulation versus mopping up after the crash
By Olivier Jeanne, Anton Korinek. The Review of Economic Studies, 2020
135 citations recorded by the source corpus.
How should macroprudential policy be designed when policymakers also have access to liquidity provision tools to manage crises? We show in a tractable model of systemic banking risk that there are three factors at play: first, ex post liquidity provision mitigates financial crises, and this reduces the need for macroprudential policy. In the extreme, if liquidity provision is untargeted and costless or if it completely forestalls crises by credible out-of-equilibrium lending-of-last-resort, there is no role left for macroprudential regulation. Second, however, macroprudential policy needs to consider the ex ante incentive effects of targeted liquidity provision. Third, if shadow banking reduces the effectiveness of macroprudential instruments, it is optimal to commit to less generous liquidity provision as a second-best substitute for macroprudential policy.
View Paper: https://www.semanticscholar.org/paper/cb651538ca22450cf21a1e97ff4a3f6d685b0749
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Citations in the corpus
- The Anatomy of the Transmission of Macroprudential Policies (2020, background): “The rationale for macroprudential policies is based on the observation that agents over-borrow in good times, not internalizing all the costs of their financing choice (Lorenzoni, 2008; Bianchi, 2011; Bianchi and Mendoza, 2010, 2018; Jeanne and Korinek, 2017).”
- Capital requirements, risk choice, and liquidity provision in a business-cycle model (2020, background): “The literature makes the case for both ine cient (e.g. Chari and Kehoe (2013)) and e cient (e.g. Jeanne and Korinek (2013)) bailouts.”
- Bank capital (requirements) and credit supply: Evidence from pillar 2 decisions (2016, unknown): “…(through a reduction in moral hazard by having more ”skin in the game”) or charge a higher loan rate due to the higher cost of bank capital (Morrison and White (2005), Adrian and Shin (2010), Shleifer and Vishny (2010), Adrian and Boyarchenko (2012), Jeanne and Korinek (2013), Malherbe (2015)).”