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Risky Bank Lending and Optimal Capital Adequacy Regulation, Jaromir Benes, Michael Kumhof

We study the welfare properties of a New Keynesian monetary economy with an essential role for risky bank lending. Banks lend funds deposited by households to a financial accelerator sector, and face penalties for maintaining insufficient net worth. The loan contract specifies an unconditional lending rate, which implies that banks can make loan losses. Their main response is to raise lending rates to rebuild net worth. Prudential rules that adjust minimum capital adequacy requirements in response to loan losses significantly increase welfare. But the gains from eliminating limited liability and moral hazard would be an order of magnitude larger
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction; II. The Model; A. Households; B. Capital Goods Producers; C. Capital Investment Funds; D. Banks; E. Manufacturers; F. Government; G. Equilibrium; H. Calibration; I. Welfare; III. Results; A. Optimal Coefficient Combination; B. Impulse Response Function.; 1. Firm Riskiness Shock - Impulse Responses; C. Overall Welfare and Policy Instrument Volatility; 2. Welfare and Instrument Volatility; 3. Welfare - Different Model Parameterizations; D. Moral Hazard and Optimal Policy; IV. Conclusion; References; Footnotes
Literary Form
non fiction
Description based upon print version of record
Physical Description
1 online resource (50 p.)
Specific Material Designation
Form Of Item

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