1. Asset-based Reserve Requirements in a Dynamic Stochastic General Equilibrium Model
- Author
-
Tae Soo Kang and Hyunduk Suh
- Subjects
Economics and Econometrics ,Reserve requirement ,Financial economics ,Monetary economics ,Asset return ,Shock (economics) ,Capital (economics) ,Political Science and International Relations ,New Keynesian economics ,Economics ,Dynamic stochastic general equilibrium ,Asset (economics) ,Macro ,Finance - Abstract
We discuss the macroeconomic effects of asset-based reserve requirements (ABRR) in a dynamic stochastic general equilibrium model. In contrast to the conventional reserve requirement system, ABRR impose reserve requirements on financial institutions’ asset holdings. The policy can be used for macro prudential purposes to reduce pro-cyclicality of financial institutions. Using a financial friction New Keynesian model based on Meh and Moran ( 2010 ), we show that ABRR can be a more effective instrument in the presence of sector-specific shocks than the Basel-III type countercyclical capital buffer. The reason is that the former policy can adjust the asset return of the specific sector hit by the shock, whereas the latter does not have such sector-specific treatment.
- Published
- 2017
- Full Text
- View/download PDF