English, Article, Journal or magazine article edition: Financial (in)stability, supervision and liquidity injections : a dynamic general equilibrium approach Gregory, DE WALQUE; Olivier, PIERRARD; Abdelaziz, ROUABAH

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Bookmark: http://trove.nla.gov.au/version/17997
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Financial (in)stability, supervision and liquidity injections : a dynamic general equilibrium approach
Author
  • Gregory, DE WALQUE
  • Olivier, PIERRARD
  • Abdelaziz, ROUABAH
Physical Description
  • preprint
Notes
  • This paper develops a dynamic stochastic general equilibrium model with interactions between an heterogeneous banking sector and other private agents. We introduce endogenous default probabilities for both firms and banks, and allow for bank regulation and liquidity injection into the interbankmarket. Our aim is to understand the importance of supervisory and monetary authorities to restore financial stability. The model is calibrated against real data and used for simulations. We show that liquidity injections reduce financial instability but have ambiguous effects on output fluctuations. The model also confirms the partial equilibrium literature results on the procyclicality of Basel II.
  • DSGE, Banking sector, Default risk, Supervision, Money
  • RePEc:nbb:reswpp:200810-23
  • We develop a dynamic stochastic general equilibrium model with an heterogeneous banking sector. We introduce endogenous default probabilities for both firms and banks, and allow for bank regulation and liquidity injection into the interbank market. Our aim is to understand the interactions between the banking sector and the rest of the economy, as well as the importance of supervisory and monetary authorities to restore financial stability. The model is calibrated against real US data and used for simulations. We show that Based regulation reduces the steady state but improves the resilience of the economy to shocks, and that moving from Basel I to Basel II is procyclical. We also show that liquidity injections relieve financial instability but have ambiguous effects on output fluctuations
  • DGSE; Banking sector; Default risk; Supervision; Central Bank
  • RePEc:ctl:louvir:2009006
Language
  • English
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