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Capital regulation and the macroeconomy: Empirical evidence and macroprudential policy

Meeks, R (2017) 'Capital regulation and the macroeconomy: Empirical evidence and macroprudential policy.' European Economic Review, 95. 125 - 141. ISSN 0014-2921

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Abstract

© 2017 We present new evidence on the macroeconomic effects of changes in microprudential bank capital requirements, using confidential regulatory data from the Basel I and II regimes in the United Kingdom. Our central result is that an increase in capital requirements lowered lending to firms and households, reduced aggregate expenditure and raised credit spreads. A financial accelerator effect is found to have amplified the macroeconomic responses to shifts in bank credit supply. Results from a counterfactual experiment that links capital requirements to house prices and mortgage spreads indicate that tighter macroprudential policy would have had a moderating effect on house price and mortgage lending growth in the early 2000s, with easier monetary policy acting to offset its contractionary effects on output.

Item Type: Article
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Jim Jamieson
Date Deposited: 31 Mar 2017 15:25
Last Modified: 27 Mar 2019 02:00
URI: http://repository.essex.ac.uk/id/eprint/19423

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