) restores the banking sector’s lending capacity after the short-term credit crunch induced by tighter regulation. We confirm our …-run after the implementation of Basel III capital regulation …

) restores the banking sector’s lending capacity after the short-term credit crunch induced by tighter regulation. We confirm our …-run after the implementation of Basel III capital regulation. …

paper, by means of a DSGE model including heterogeneous firms and banks, financial frictions and prudential regulation … increases the volatility of lending and output. We further show that relying on microprudential regulation alone would not be … microprudential regulation, leads to a Pareto improvement. …