Credit, Endogenous Collateral and Risky Assets: A DSGE Model

Falagiarda, Matteo ; Saia, Alessandro (2013) Credit, Endogenous Collateral and Risky Assets: A DSGE Model. Bologna: Dipartimento di Scienze economiche DSE, p. 49. DOI 10.6092/unibo/amsacta/3921. In: Quaderni - Working Paper DSE (916). ISSN 2282-6483.
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Abstract

This paper proposes a new Dynamic Stochastic General Equilibrium (DSGE) model with credit frictions and a banking sector, which endogenizes loan-to-value (LTV) ratios of households and banks by expressing them as a function of systemic and idiosyncratic proxies for risk. Moreover, the model features endogenous balance sheet choices and a novel formulation of the targeted leverage ratio, in which assets are risk-weighted by risk-sensitivity measures. The results highlighted in this paper are important along two dimensions. First of all, the presence of endogenous LTV ratios exacerbates the procyclicality of lending conditions. Second, the model contributes to deeper understand the role of prudential regulatory frameworks in affecting business cycle fluctuations and in restoring macroeconomic and financial stability. The results suggest that when the economy is severely stressed by shocks originating in the financial sector, prudential regimes such as Basel II and Basel III are capable of downsizing substantially aggregate volatility, with Basel III found to be significantly more effective than Basel II.

Abstract
Tipologia del documento
Monografia (Working paper)
Autori
AutoreAffiliazioneORCID
Falagiarda, Matteo
Saia, Alessandro
Parole chiave
Banks, Leverage, DSGE models, Basel Accords
Settori scientifico-disciplinari
ISSN
2282-6483
DOI
Data di deposito
27 Dic 2013 18:54
Ultima modifica
10 Feb 2014 10:45
URI

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