Authors: Pervin Dadashova, Magnus Jonsson
Abstract: We examine how to implement macroprudential policies – stricter capital requirements and loan-to value limits – in order to mitigate the output loss of corporate debt deleveraging. The analysis is performed in a dynamic general equilibrium model calibrated to fit the U.S. economy. Stricter capital requirements are generally costlier in terms of output losses than stricter loan-to-value limits. For both instruments, the output loss is a convex function of the debt-to-GDP ratio. Finally, the output loss can be significantly reduced by implementing the requirements gradually, and by activating a countercyclical capital buffer.
Cite as: Dadashova, P., Jonsson, M. (2019). Mitigating the cost of stricter macroprudential policies. NBU Working Papers, 2/2019. Kyiv: National Bank of Ukraine. Retrieved from https://bank.gov.ua/admin_uploads/article/wp_nbu_2019-2_Dadashova_eng.pdf