paper shows that financial regulation can be effective at mitigating this type of risk. Exploiting regulatory changes … financial institutions subject to stricter regulation. Following the easing of these regulations, overconfidence-induced risk …-taking increases again. These findings confirm the effectiveness of financial regulation at correcting overconfident behavior, but also …

in macroprudential capital regulation. Our findings suggest a dichotomy between country groups. In peripheral countries … core countries, the cyclically adjusted primary balance ratio barely reacts to a sudden tightening in capital regulation. …