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Capital regulation and the macroeconomy: Empirical evidence and macroprudential policy

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

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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
Uncontrolled Keywords: Bank lending and the macroeconomy; Bank capital regulation; Housing market; Macroprudential policy; Basel III
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences
Faculty of Social Sciences > Economics, Department of
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 31 Mar 2017 15:25
Last Modified: 18 Aug 2022 12:49

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