We propose an algorithm to model contagion in the interbank market via what we term the credit quality channel. In existing models on contagion via interbank credit, external shocks to banks often spread to other banks only in case of a default. In contrast, shocks are transmitted via asset...

In this paper, we study the optimal mix of monetary and macroprudential policies in an estimated two-country model of the euro area. The model includes real, nominal and financial frictions, and hence both monetary and macroprudential policy can play a role. We find that the introduction of a...

We explore how changes in capital-based macroprudential regulation affect theexposure of national banking sectors to domestic government debt in the euro area,thus strengthening or weakening the sovereign-bank nexus. To do so, we construct ameasure of macroprudential policy based on...

We develop a theoretical model of mortgage loss rates that evaluates their main underlying risk factors. Following the model, loss rates are positively influenced by the house price level, the loan-to-value of mortgages, interest rates, and the unemployment rate. They are negatively influenced...

Monetary policy leaves a fiscal footprint. In some circumstances, relieving the fiscal burden becomes the main goal of policy, and inflation control is subordinate. This article notes that the same is true of macroprudential policy, and it characterizes the size and sign of its fiscal footprint,...

In this paper, we consider models of price-mediated contagion in a banking networkof common asset holdings. For these models, the literature proposed two alternativeclasses of liquidation dynamics:threshold dynamics(banks liquidate their invest-ment portfolios only after they have defaulted),...

The development of macroprudential policy tools has been one of the most significant changes in banking regulation in recent years. In this multi-study initiative of the International Banking Research Network (IBRN), researchers from 15 central banks and 2 international organizations use...

This paper builds a macro model with a financial sector and a housing market to understand the transmission and effects of macroprudential instruments addressing mortgage credit. The model compares the introduction of a loan-to-value ratio (LTV), a countercyclical capital buffer (CCyB)-style...

Multi-agency financial stability committees (FSCs) have grown dramatically since the global financial crisis. However, most cannot direct actions or recommend to other agencies that they take actions, and most would influence policy actions only through convening and discussing risks. We...

On the occasion of related proposals by the European Commission and the Eurogroup, this paper proposes to entrust the ESM with the hosting of the ESRB in the medium term. The novel proposal aims at strengthening the macro-prudential expertise of the ESM and at enhancing the independence of the...