American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Credit Spreads, Financial Crises, and Macroprudential Policy
American Economic Journal: Macroeconomics
vol. 14,
no. 2, April 2022
(pp. 469–507)
Abstract
Credit spreads display occasional spikes and are more strongly countercyclical in times of elevated financial stress. Financial crises are extreme cases of this nonlinear behavior, featuring skyrocketing credit spreads, sharp losses in bank equity, and deep recessions. We develop and estimate a macroeconomic model with a banking sector in which banks' leverage constraints are occasionally binding and equity issuance is endogenous. The model captures the nonlinearities in the data and produces quantitatively realistic crises. Banks' precautionary equity issuance makes crises infrequent but does not prevent them altogether. A macroprudential policy inducing banks to issue more equity has considerable welfare benefits.Citation
Akinci, Ozge, and Albert Queralto. 2022. "Credit Spreads, Financial Crises, and Macroprudential Policy." American Economic Journal: Macroeconomics, 14 (2): 469–507. DOI: 10.1257/mac.20180059Additional Materials
JEL Classification
- E13 General Aggregative Models: Neoclassical
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
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