This paper analyzes the effects of several policy instruments for mitigating financial bubbles generated in the banking sector. We augment a New Keynesian macroeconomic framework by endogenizing boundedly-rational expectations on asset values of loan portfolios, allow for interbank trading and...

We develop a multivariate unobserved components model to extract business cycle and financial cycle indicators from a panel of economic and financial time series of four large developed economies. Our model is flexible and allows for the inclusion of cycle components in different selections of...

Banks must maintain a balance between their own capital and the level of accepted aggregate risk to ensure financial stability. This paradigm is expressed in terms of capital adequacy requirements to both the minimum capital required to cover regulatory risks and the risk capital required to...