Modeling two macro policy instruments: interest rates and aggregate capital requirements
In: CESifo working paper series 3598
In: Monetary policy and international finance
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.
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Sprachen
Englisch
Verlag
Univ., Center for Economic Studies
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