Countercyclical Capital Buffer and Monetary Policy

This paper explores the effect of the countercyclical capital buffer using a DSGE (Dynamic Stochastic General Equilibrium) model with a banking sector. The main results are following. First, if the CAR (capital asset ratio) rises by 1%p as the countercyclical capital buffer, output and credit would...

Full description

Saved in:
Bibliographic Details
Published inKDI Journal of Economic Policy Vol. 34; no. 4; pp. 69 - 90
Main Authors Yoo, Byoung Hark, Jo, Kyoo-Hwan
Format Journal Article
LanguageEnglish
Published Korea Development Institute 01.11.2012
Subjects
경기대응완충자본(Countercyclical Capital Buffer)
은행자본(Bank Capital)
Online AccessGet full text

Cover

More Information
Summary:This paper explores the effect of the countercyclical capital buffer using a DSGE (Dynamic Stochastic General Equilibrium) model with a banking sector. The main results are following. First, if the CAR (capital asset ratio) rises by 1%p as the countercyclical capital buffer, output and credit would increase less than otherwise by 0.8%p and 1.2%p, respectively. Second, the countercyclical capital buffer would decrease both credit and debt of banks, or deposit, and, as a result, boost the CAR. However, if we are going to use monetary policy to control credit expansion by allowing the interest rate to respond to credit, bank capital would also diminish, which would cause the CAR to be lower.
ISSN:2586-2995
2586-4130
DOI:10.23895/kdijep.2012.34.4.69