The Volatility Costs of Procyclical Lending Standards

The ongoing financial turmoil has triggered a lively debate on ways of containing systemic risk and lessening the likelihood of boom-and-bust episodes in credit markets. Particularly, it has been argued that banking regulation might attenuate procyclicality in lending standards by affecting the behavior of banks' capital buffers. This paper uses a two-country DSGE model with financial frictions to illustrate how procyclicality in borrowing limits reinforces the "overreaction" of asset prices to shocks described by Aiyagari and Gertler (1999), and to quantify the stabilization gains from polici

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Year of publication:	2009
Authors:	Sgherri, Silvia
Other Persons:	Gruss, Bertrand (contributor)
Publisher:	Washington : International Monetary Fund
Subject:	Theorie \| Theory \| Kreditgeschäft \| Bank lending \| Volatilität \| Volatility

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Extent:	Online-Ressource (39 p)
Series:	IMF Working Papers IMF working paper ; WP/09/35
Type of publication:	Book / Working Paper
Language:	English
Notes:	Description based upon print version of record Contents; I. Introduction; II. Empirical Evidence; III. The Model; A. Home economy; B. Foreign economy; C. Shocks; D. Equilibrium and solution method; IV. Calibration; V. Policy experiment: altering the cyclical pattern of lending standards; A. Benchmark leverage level; B. Alternative leverage levels; VI. Sensitivity analysis; VII. Conclusions; Appendix; References; Tables; 1. Results from Estimating an AR(1) Processes to Demeaned LTVs; 2. Benchmark Calibration; Figures; 1. Time Variation in Loan-To-Value Ratios; 2. Share of Output Variation Explained by Credit and Asset Price Shocks 3. Degree of Cyclicality in Credit Innovations4. Procyclicality in Credit Innovations and Sensitivity of Credit to Asset Price Shocks; 5. Procyclicality in Credit Innovations and Macroeconomic Volatility; 6. Increasing Reliance of Emerging Europe on Foreign Funding; 7. Concentration of Emerging Europe Exposure to Western Europe; 3. Business Cycle Moments from Simulated Series under Benchmark Calibration; 4. Policy Exercise Results (Average LTV = 0.4); 5. Policy Exercise Results (Average LTV = 0.7); 8. IRFs to a Negative Productivity Shock under Alternative Leverage Levels 9. IRFs to a Negative Shock to Lending Standards under Alternative Leverage Levels10. Sensitivity of Volatility to Different Degrees of Cyclicality in Lending Standards Under Alternative Leverage Levels; 6. Sensitivity Analysis
ISBN:	978-1-4518-7182-1 ; 978-1-4519-1618-8 ; 978-1-4518-7182-1
Source:	ECONIS - Online Catalogue of the ZBW

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