Leverage restrictions in a business cycle model: a comment

The paper by Christiano and Ikeda in this volume is one of the first efforts to quantify the welfare gains of leverage constraints in a macroeconomic model with a banking sector. Unlike other models their answer is that they can be even more desirable when banks hold little equity and intermediation...

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Autor principal:	Bigio, Saki
Formato:	Artículo
Lenguaje:	eng
Publicado:	Banco Central de Chile 2019
Materias:	CICLOS ECONÓMICOS BANCOS MERCADO FINANCIERO
Acceso en línea:	https://hdl.handle.net/20.500.12580/3807
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spelling	oai-20.500.12580-38072021-04-24T11:08:24Z Leverage restrictions in a business cycle model: a comment Bigio, Saki CICLOS ECONÓMICOS BANCOS MERCADO FINANCIERO The paper by Christiano and Ikeda in this volume is one of the first efforts to quantify the welfare gains of leverage constraints in a macroeconomic model with a banking sector. Unlike other models their answer is that they can be even more desirable when banks hold little equity and intermediation is depressed. The paper stresses a static force that makes leverage constraints desirable from a second best perspective. This static consideration is the outcome of two frictions: The first is hidden effort on the side of bankers when choosing projects to fund. The second is the presence of incomplete contracts (in the form of limited liability) which prevents depositors from setting contracts that eliminate the hidden effort problem. As a consequence of the lack of optimal contracts times when banks have little equity will be times when optimal contracts cannot be signed and effort is inefficient. 2019-11-01T00:06:13Z 2019-11-01T00:06:13Z 2014 Artículo 978-956-7421-45-9 https://hdl.handle.net/20.500.12580/3807 eng Series on Central Banking Analysis and Economic Policies no. 19 Attribution-NonCommercial-NoDerivs 3.0 Chile http://creativecommons.org/licenses/by-nc-nd/3.0/cl/ .pdf Sección o Parte de un Documento p. 257-272 application/pdf Banco Central de Chile
institution	Banco Central
collection	Banco Central
language	eng
topic	CICLOS ECONÓMICOS BANCOS MERCADO FINANCIERO
spellingShingle	CICLOS ECONÓMICOS BANCOS MERCADO FINANCIERO Bigio, Saki Leverage restrictions in a business cycle model: a comment
description	The paper by Christiano and Ikeda in this volume is one of the first efforts to quantify the welfare gains of leverage constraints in a macroeconomic model with a banking sector. Unlike other models their answer is that they can be even more desirable when banks hold little equity and intermediation is depressed. The paper stresses a static force that makes leverage constraints desirable from a second best perspective. This static consideration is the outcome of two frictions: The first is hidden effort on the side of bankers when choosing projects to fund. The second is the presence of incomplete contracts (in the form of limited liability) which prevents depositors from setting contracts that eliminate the hidden effort problem. As a consequence of the lack of optimal contracts times when banks have little equity will be times when optimal contracts cannot be signed and effort is inefficient.
format	Artículo
author	Bigio, Saki
author_facet	Bigio, Saki
author_sort	Bigio, Saki
title	Leverage restrictions in a business cycle model: a comment
title_short	Leverage restrictions in a business cycle model: a comment
title_full	Leverage restrictions in a business cycle model: a comment
title_fullStr	Leverage restrictions in a business cycle model: a comment
title_full_unstemmed	Leverage restrictions in a business cycle model: a comment
title_sort	leverage restrictions in a business cycle model: a comment
publisher	Banco Central de Chile
publishDate	2019
url	https://hdl.handle.net/20.500.12580/3807
work_keys_str_mv	AT bigiosaki leveragerestrictionsinabusinesscyclemodelacomment
_version_	1718346334278254592

Leverage restrictions in a business cycle model: a comment

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