CAPITAL ADEQUACY REQUIREMENTS AND THE FINANCIAL ACCELERATOR CAUSED BY BANK CAPITAL |
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| Authors: | HITOSHI INOUE |
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| Institution: | 1. Osaka University;2. I would like to thank Yuzo Honda for his valuable comments and encouragement. I am also grateful to two anonymous referees, Kaoru Hosono, Yusuke Kinari, Masahiko Shibamoto, Masayo Kani, and seminar participants in Honda's seminar at Osaka University and in Rokko Forum at Kobe University for their valuable comments and suggestions. I also thank Yoshiro Tsutsui, Kazuo Ogawa, Kenjiro Hirata, and Daisuke Ishikawa for their valuable comments on the earlier version of this paper. All remaining errors are mine. |
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| Abstract: | This paper develops a computable dynamic general equilibrium model with heterogeneous banks, a portion of which may be constrained by capital adequacy requirements and the remainder of which may not, in order to examine what effects the capital requirements and bank capital induce in the macroeconomy. Applying the parameterized expectations algorithm, the model economy shows that binding bank capital constraints induce the financial accelerator, the hump‐shaped dynamic behaviour of output, and ineffectuality of monetary policy, and that all the results are derived from the individual banks’ cross‐sectional asymmetric responses that are consistent with the empirical evidence. |
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| Keywords: | C28 E32 E52 G28 |
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