Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5088500 | Journal of Banking & Finance | 2015 | 15 Pages |
Abstract
Interactions between loan-loss provisioning regimes and business cycle fluctuations are studied in a dynamic stochastic general equilibrium model with credit market imperfections. With a specific provisioning system, provisions are triggered by past due payments. With a dynamic system, both past due payments and expected losses over the whole business cycle are accounted for, and provisions are smoothed over the cycle. Numerical experiments with a parameterized version of the model show that a dynamic provisioning regime can be highly effective in mitigating procyclicality of the financial system. The results also indicate that the combination of a credit gap-augmented Taylor rule and a dynamic provisioning system with full smoothing may be the most effective way to mitigate real and financial volatility associated with financial shocks.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Pierre-Richard Agénor, Roy Zilberman,