Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/175210
Authors: 
Akinci, Ozge
Queralto, Albert
Year of Publication: 
2016
Series/Report no.: 
Staff Report 802
Abstract: 
Credit spreads display occasional spikes and are more strongly countercyclical in times of financial stress. Financial crises are extreme cases of this nonlinear behavior, featuring deep recessions and sharp losses in bank equity. We develop a macroeconomic model with a banking sector in which banks' leverage constraints are occasionally binding and equity issuance is endogenous. The model captures the nonlinearities in the data and produces quantitatively realistic crises. Endogenous equity issuance makes crises infrequent but does not prevent them altogether. Macroprudential policy designed to enhance banks' incentive to issue equity lowers the probability of a crisis and increases welfare.
Subjects: 
financial intermediation
sudden stops
leverage constraints
occasionally binding constraints
financial stability policy
JEL: 
E32
E44
F41
Document Type: 
Working Paper

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