Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
7366980 | Journal of Macroeconomics | 2017 | 47 Pages |
Abstract
This paper studies the effectiveness of countercyclical capital requirements and contingent convertible capital (CoCos) in limiting financial instability, and its associated influence on the real economy. To do this, I augment both features into a standard business cycle framework with an equity market and a banking sector. The model is calibrated to real U.S. data and used for simulations. The findings suggest that a countercyclical capital adequacy rule and CoCos provide an effective dual approach to macroprudential policy. On the one hand, a capital adequacy rule mitigates the build-up of systemic risk through a capital buffer. On the other hand, CoCos are able to reduce the impact of a sudden decline in bank capital.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Hylton Hollander,