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The B.E. Journal of Macroeconomics

Editor-in-Chief: Cavalcanti, Tiago / Kambourov, Gueorgui

Ed. by Abraham, Arpad / Carceles-Poveda , Eva / Debortoli, Davide / Schwartzman, Felipe / Wang, Pengfei

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

Derrick Kanngiesser / Reiner Martin / Laurent Maurin / Diego Moccero
Published Online: 2019-04-05 | DOI: https://doi.org/10.1515/bejm-2018-0009


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.

This article offers supplementary material which is provided at the end of the article.

Keywords: bank balance sheet adjustment; bank capital buffer; bayesian VAR; Euro area; sign restrictions

JEL Classification: C11; E58; G21


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Published Online: 2019-04-05

Citation Information: The B.E. Journal of Macroeconomics, 20180009, ISSN (Online) 1935-1690, DOI: https://doi.org/10.1515/bejm-2018-0009.

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