Research

This paper studies how borrower-based macroprudential (BBM) policies shape macro-financial dynamics when credit demand and credit supply frictions interact. Using smooth-transition panel local projections for euro-area countries, I show that the macroeconomic effects of adverse credit shocks are significantly larger when household indebtedness and bank fragility are simultaneously elevated. I then show, in a simple theoretical model featuring a collateral constraint and a bank balance-sheet constraint, that this state dependence arises from a feedback loop between collateral values and bank net worth. Quantitative simulations from a medium-scale DSGE model indicate that tighter loan-to-value (LTV) limits dampen downturns not only by restraining leverage ex ante, but also by protecting bank capital and stabilizing credit supply ex post. Welfare comparisons suggest that the benefits of BBM policies increase with housing market risk and banking-sector fragility.

This paper analyzes the side effects of monetary policy tightening on financial stability through the lens of a DSGE model where banks and households endogenously default. We find that a combination of borrower- and capital-based macroprudential policies can mitigate these side effects and improve welfare. More specifically, structurally tighter capital requirements and loan-to-value (LTV) caps improve financial stability by reducing the likelihood of default by banks and households. However, tighter structural policies reduce access to credit, triggering a negative effect on welfare. Time-varying policies, such as counter-cyclical capital buffers (CCyB) and adjustable LTV caps, are able to mitigate ex-post adverse effects, allowing for less tight optimal structural policies and thus significantly improving welfare. Finally, we find that the effects of the CCyB are highly state-dependent. The releases support credit availability when banks are strong, but the increase in risk could offset their counter-cyclical effects if banks are fragile.

This paper proposes a novel methodology to calibrate the Countercyclical Capital Buffer (CCyB), with particular focus on the positive neutral CCyB (PN CCyB) rate. It implements a Risk-to-Buffer approach in both a DSGE and a macroeconomic time series setting. The methodology consists in estimating the amplification of adverse shocks triggered by different levels of systemic risk, and calibrating the CCyB to offset the corresponding amplification effect. In particular, the PN CCyB is calibrated to mitigate the macroeconomic amplification of shocks that occur when systemic risk is neither subdued nor elevated. The flexibility of the approach, regarding the choice of modeling tools, the selection of risk levels, and the identification of state variables and exogenous shocks, makes it particularly well suited to national specificities and policymakers’ preferences.