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Title:The macroeconomic implications of changes in bank capital and liquidity requirements in Canada: Insights from the BoC-GEM-FIN PDF Logo
Authors:de Resende, Carlos
Dib, Ali
Perevalov, Nikita
Issue Date:2010
Series/Report no.:Bank of Canada Discussion Paper 2010-16
Abstract:The authors use simulations within the BoC-GEM-FIN, the Bank of Canada's version of the Global Economy Model with financial frictions in both the demand and supply sides of the credit market, to investigate the macroeconomic implications of changing bank regulations on the Canadian economy. Specifically, they compute short- and long-run impacts on key macroeconomic and financial variables following increases in the minimum required capital and liquidity ratios. The results indicate that, while long-run effects on bank loans, lending spreads, investment, and output are modest, the short-run effects are non-negligible. In addition, the time horizon for implementing the regulatory changes and the response of monetary policy substantially affect the macroeconomic outcomes. Finally, increasing the required bank capital ratio in other economies roughly doubles the size and duration of the economic downturn in Canada, compared to the case where the increase is implemented only in the Canadian banking sector.
Subjects:Financial institutions
Economic models
Financial stability
International topics
JEL:E32
E44
E5
G1
G2
Document Type:Working Paper
Appears in Collections:Bank of Canada Discussion Papers

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