Agénor, Pierre-RichardPereira da Silva, Luiz A.2012-03-192012-03-192009-09-01https://hdl.handle.net/10986/4262This paper analyzes the cyclical effects of bank capital requirements in a simple model with credit market imperfections. Lending rates are set as a premium over the cost of borrowing from the central bank, with the premium itself depending on firms effective collateral. Basel I- and Basel II-type regulatory regimes are defined and a capital channel is introduced through a signaling effect of capital buffers on the cost of bank deposits. The macroeconomic effects of various shocks (a drop in output, an increase in the refinance rate, and a rise in the capital adequacy ratio) are analyzed, under both binding and nonbinding capital requirements. Factors affecting the procyclicality of each regime (defined in terms of the behavior of the risk premium) are also identified and policy implications are discussed.CC BY 3.0 IGOACCELERATORACCELERATOR EFFECTACCOUNTINGADVERSE CONSEQUENCESADVERSE EFFECTADVERSE SHOCKSAGGREGATE DEMANDAGGREGATE SUPPLYALTERNATIVE FUNDINGALTERNATIVE REGIMESAMOUNT OF LOANSARBITRAGEASSET PRICESASSET QUALITYASYMMETRIC INFORMATIONBACKED SECURITIESBAD CREDITBALANCE SHEETBALANCE SHEETSBALANCE-SHEETBANK ASSETBANK ASSETSBANK BEHAVIORBANK CAPITALBANK CREDITBANK DEBTBANK DEPOSITBANK DEPOSITSBANK FOR INTERNATIONAL SETTLEMENTSBANK LENDINGBANK LIQUIDITYBANK LOANSBANK OF CANADABANK OF ENGLANDBANK REGULATIONBANK REGULATIONSBANKRUPTCYBANKSBILLBILLSBONDSBOOK VALUEBORROWERBORROWINGBORROWING COSTSBUFFERBUFFERSBUSINESS CYCLECAPITAL ACCUMULATIONCAPITAL ADEQUACYCAPITAL BASECAPITAL LOANSCAPITAL MARKETSCAPITAL REGULATIONCAPITAL REQUIREMENTCAPITAL REQUIREMENTSCAPITAL STANDARDSCAPITAL STOCKCENTRAL BANKCENTRAL BANKINGCLARITYCOLLATERALCOMMERCIAL BANKCOMMERCIAL BANK ASSETSCOMMERCIAL BANKSCOMMERCIAL PAPERCONSUMPTION EXPENDITURECONTRACT ENFORCEMENTCORPORATE BONDSCREDIT CRUNCHCREDIT MARKETCREDIT MARKETSCREDIT RATIONINGCREDIT RISKSCREDITSCURRENCYDEBTDEBT CONTRACTSDEBT INSTRUMENTSDEBTSDEFAULT RISKDEMAND FOR CREDITDEPOSIT GUARANTEESDEPOSIT INSURANCEDEPOSITORSDEPOSITSDERIVATIVEDERIVATIVESDEVELOPING COUNTRIESDEVELOPMENT ECONOMICSDEVELOPMENT MACROECONOMICSDISPOSABLE INCOMEDISTORTIONSDOMESTIC GOODDOWNWARD PRESSUREECONOMIC ACTIVITYECONOMIC ENVIRONMENTECONOMIC POLICYELASTICITYELASTICITY OF OUTPUTEMPLOYMENTEQUILIBRIUMEQUILIBRIUM CONDITIONEQUILIBRIUM CONDITIONSEQUITY CAPITALEXCESS DEMANDEXCESS SUPPLYEXOGENOUS SHOCKEXOGENOUS SHOCKSEXPENDITUREEXTERNAL FINANCEFINANCIAL CRISISFINANCIAL FRAGILITIESFINANCIAL INSTITUTIONSFINANCIAL INTERMEDIATIONFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL SECTORFINANCIAL STABILITYFINANCIAL SYSTEMFINANCIAL SYSTEMSFUNDING SOURCESGENERAL EQUILIBRIUMGENERAL EQUILIBRIUM ANALYSISGROWTH RATEHOLDINGHOMOGENEOUS GOODHOUSEHOLD DEPOSITSHOUSEHOLD WEALTHHOUSEHOLDSHOUSINGIDIMPACT ON PRICESINADEQUATE DISCLOSUREINCOME EFFECTINDEXATIONINFLATIONINFLATION RATEINTEREST PAYMENTSINTEREST RATEINTEREST RATESINTERNATIONAL BANKINVESTMENT PURPOSESLABOR COSTSLEGAL SYSTEMLEVEL OF INVESTMENTLEVERAGELIABILITYLIABILITY MANAGEMENTLIQUIDITY CONSTRAINTSLOANLOAN DEFAULTLOAN DEMANDMACROECONOMIC EFFECTSMACROECONOMIC MODELMACROECONOMICSMARGINAL COSTMARKET DISCIPLINEMARKET EQUILIBRIUMMARKET RATESMONETARY AUTHORITYMONETARY ECONOMICSMONETARY SHOCKSMONETARY TRANSMISSIONMORAL HAZARDMORTGAGEMORTGAGE MARKETMORTGAGE-BACKED SECURITIESMORTGAGESNEGATIVE SUPPLY SHOCKNET WORTHNOMINAL WAGEOPEN ECONOMIESOPPORTUNITY COSTPENALTIESPHYSICAL CAPITALPLEDGE COLLATERALPORTFOLIOSPOSSIBILITY OF DEFAULTPRICE HIKEPRICE INCREASEPRIVATE CONSUMPTIONPROBABILITY OF DEFAULTPRODUCTION COSTSPRODUCTION FUNCTIONPROFIT MARGINPROPERTY RIGHTSPRUDENTIAL REGULATIONSRATE OF INFLATIONREAL CONSUMPTIONREAL INVESTMENTRECESSIONREGULATORY AUTHORITYREGULATORY FRAMEWORKREGULATORY REFORMSREGULATORY REGIMESREPAYMENTRESERVERESERVE ADEQUACYRESERVE REQUIREMENTSRESERVESRETAINED EARNINGSRETURNRETURN ON EQUITYRISK AVERSERISK EXPOSURERISK MANAGEMENTRISK PREMIUMRISK TAKINGSECURITIESSIGNALINGSOLVENCYSUBSTITUTION EFFECTSUPPLY CURVETERMS OF CREDITTOTAL CREDITTOTAL CURRENCYTRANSMISSION MECHANISMTRANSMISSION OF MONETARY POLICYTRANSPARENCYUNCERTAINTYUNDERDEVELOPED CAPITAL MARKETSUPWARD JUMPUPWARD PRESSUREVALUE OF COLLATERALVULNERABILITY TO SHOCKSWAGESWEALTHWEIGHTSWORKING CAPITALWRITEDOWNSWorld Bank10.1596/1813-9450-5067