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Title:Modeling two Macro policy instruments: Interest rates and aggregate capital requirements PDF Logo
Authors:Gersbach, Hans
Hahn, Volker
Issue Date:2011
Series/Report no.:CESifo working paper: Monetary Policy and International Finance 3598
Abstract:We present a simple neoclassical model to explore how an aggregate bank-capital requirement can be used as a macroeconomic policy tool and how this additional tool interacts with monetary policy. Aggregate bank-capital requirements should be adjusted when the economy is hit by cost-push shocks but should not respond to demand shocks. Moreover, an optimal institutional structure is characterized as follows: First, monetary policy is delegated to an independent and conservative central banker. Second, setting aggregate bank-capital requirements is separated from monetary policy.
Subjects:central banks
banking regulation
capital requirements
optimal monetary policy
JEL:E52
E58
G28
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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