A dynamic analysis of an economy with banking optimization and capital adequacy regulations [An article from: Journal of Economics and Business]

This digital document is a journal article from Journal of Economics and Business, published by Elsevier in 2007. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
In this paper, we investigate the short-run and long-run macroeconomic effects of bank net worth and capital adequacy regulations. In general, capital adequacy regulations work as a stabilizer in the sense that they reduce the macroeconomic effects of negative productivity shocks. In addition, strengthening of the regulations increases the long-run capital stock, although it may lead the economy to a recession in the short run. However, the timing of the introduction of tight regulations is important. If the regulations become tighter when a negative productivity shock occurs, the economy falls into a long and severe slump. This is consistent with what the Japanese economy has experienced after the bubble economy.