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The macroeconomic impact of shocks to bank capital buffers in the Euro Area

  • Derrick Kanngiesser , Reiner Martin , Laurent Maurin and Diego Moccero EMAIL logo
Published/Copyright: April 5, 2019
The B.E. Journal of Macroeconomics
From the journal The B.E. Journal of Macroeconomics Volume 20 Issue 1

Abstract

While the global financial crisis revealed a need for macroprudential policy tools to mitigate the build-up of risk in the financial system, the impact of such policies on the banking sector and the macroeconomy remains largely uncertain. We contribute to the empirical literature that estimates the impact of shocks to bank capital buffers on bank lending and the macroeconomy by estimating a Bayesian VAR model identified with sign restrictions. We use bank-level data for large euro area listed banks to construct an aggregate bank capital buffer for the euro area, which is included as another variable in the model. We estimate three shocks affecting the euro area economy, namely a demand shock, a monetary policy shock and a shock to bank capital buffers. We find that banks curtail lending and reduce their relative exposure to riskier assets in response to a shock to the bank capital buffer. Historical shock decomposition analysis shows that shocks to bank capital buffers have contributed to impair bank lending growth and to widen bank lending spreads, hence depressing economic activity.

Keywords: bank balance sheet adjustment; bank capital buffer; bayesian VAR; Euro area; sign restrictions
JEL Classification: C11; E58; G21

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Supplementary Material

The online version of this article offers supplementary material (DOI: https://doi.org/10.1515/bejm-2018-0009).

Published Online: 2019-04-05

©2020 Walter de Gruyter GmbH, Berlin/Boston

Articles in the same Issue

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  2. An empirical study on the New Keynesian wage Phillips curve: Japan and the US
  3. Risk averse banks and excess reserve fluctuations
  4. Advances
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  6. Contributions
  7. Robust learning in the foreign exchange market
  8. Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach
  9. Discretion rather than rules? Outdated optimal commitment plans versus discretionary policymaking
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  22. Collateral and development
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  31. Changing demand for general skills, technological uncertainty, and economic growth
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https://doi.org/10.1515/bejm-2018-0009
Keywords for this article
bank balance sheet adjustment; bank capital buffer; bayesian VAR; Euro area; sign restrictions

Articles in the same Issue

  1. Contributions
  2. An empirical study on the New Keynesian wage Phillips curve: Japan and the US
  3. Risk averse banks and excess reserve fluctuations
  4. Advances
  5. Signaling in monetary policy near the zero lower bound
  6. Contributions
  7. Robust learning in the foreign exchange market
  8. Foreign official holdings of US treasuries, stock effect and the economy: a DSGE approach
  9. Discretion rather than rules? Outdated optimal commitment plans versus discretionary policymaking
  10. Agency costs and the monetary transmission mechanism
  11. Advances
  12. Optimal monetary policy in a model of vertical production and trade with reference currency
  13. The financial accelerator and marketable debt: the prolongation channel
  14. The welfare cost of inflation with banking time
  15. Prospect Theory and sentiment-driven fluctuations
  16. Contributions
  17. Household borrowing constraints and monetary policy in emerging economies
  18. The macroeconomic impact of shocks to bank capital buffers in the Euro Area
  19. The effects of monetary policy on input inventories
  20. The welfare effects of infrastructure investment in a heterogeneous agents economy
  21. Advances
  22. Collateral and development
  23. Contributions
  24. Financial deepening in a two-sector endogenous growth model with productivity heterogeneity
  25. Is unemployment on steroids in advanced economies?
  26. Monitoring and coordination for essentiality of money
  27. Dynamics of female labor force participation and welfare with multiple social reference groups
  28. Advances
  29. Technology and the two margins of labor adjustment: a New Keynesian perspective
  30. Contributions
  31. Changing demand for general skills, technological uncertainty, and economic growth
  32. Job competition, human capital, and the lock-in effect: can unemployment insurance efficiently allocate human capital
  33. Fiscal policy and the output costs of sovereign default
  34. Animal spirits in an open economy: an interaction-based approach to the business cycle
  35. Ramsey income taxation in a small open economy with trade in capital goods
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