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- Title
DO CAPITAL ADEQUACY REQUIREMENTS MATTER FOR MONETARY POLICY?
- Authors
CECCHETTI, STEPHEN G.; LI, LIANFA
- Abstract
Central bankers and financial supervisors can have conflicting goals. While monetary policymakers work to ensure sufficient lending activities as a foundation for high and stable economic growth, supervisors may limit banks’ lending capacities in order to prevent excessive risk taking. We show that, in theory, central bankers can avoid this potential conflict by adopting an interest rate strategy that takes accounts of capital adequacy requirements. Empirical evidence suggests that while policymakers at the Federal Reserve have adjusted their interest rate to neutralizing the procyclical impact of bank capital requirements, those in Germany and Japan have not. ( JEL E52, E58, G21)
- Subjects
MONETARY policy; ECONOMIC development; CENTRAL banking industry; ECONOMIC indicators; CAPITAL; TECHNICAL specifications
- Publication
Economic Inquiry, 2008, Vol 46, Issue 4, p643
- ISSN
0095-2583
- Publication type
Article
- DOI
10.1111/j.1465-7295.2007.00085.x