The Bank Capital Regulation and Monetary Policy

Junxun DAI

Abstract


Bank capital regulation under Basel Accord has changed the allocation of credit funds and the operation rule of the economy in great degree, and subsequently affected the foundation condition and transmission mechanism of the monetary policies. Given the business cycle, this paper makes the extended analysis of the IS-LM model under capital regulation, and finds that capital regulation will induce the asymmetric effects of monetary policy through the bank lending channel, so theoretically demonstrates that the operation of monetary policy must consider the bank capital regulation. This paper also employs Stochastic Frontiers Analysis to test the joint effectiveness of monetary policy and Bank capital regulation in china from 2000-2009. This test shows that the effectiveness of the monetary policy on realizing economic objective would be weakened by bank capital regulation in China. Therefore, to achieve the objectives of stable price and output, the authority must consider the capital requirement of the banks when enacting the monetary policy,.

Key words: Bank capital regulation; Monetary policy; Joint effectiveness


Keywords


Bank capital regulation; Monetary policy; Joint effectiveness

References


Barth, J., Caprio, G., & Levine, R. (2004). Bank Regulation and Supervision: What Works Best? Journal of Financial Intermediation, 13, 205-48.

Bernanke, B., Gertler, M., & Gilchrist, S. (1999). The Financial Accelerator in a Quantitative Business Cycle Framework (pp. 1341-393). Amsterdam: Handbook of Macroeconomics.

Blum, J., & Hellwig, M. (1995). The Macroeconomic Implications of Capital Adequacy Requirements for Banks. European Economic Review, 51, 1-17.

Chami, R., & Cosimano, T. (2001). Monetary Policy with a Touch of Basel. IMF Working Paper, (1), 151.

Diamond, D.W., & Rajan, R.G. (2000). A Theory of Bank Capital. Journal of Finance, 55, 2431-65.

Diamond, D.W., & Rajan, R.G. (2001). Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking. Journal of Political Economy, 109, 287-327.

Gambacorta, Leonardo., & Mistrulli, Paolo Emilio. (2004). Does Bank Capital Affect Lending Behavior? Journal of Financial Intermediation, 13, 436–457.

Gontermann (2004). Capital Adequacy Requirements and the Bank Lending Channel of Monetary Policy. Retrieved from http://epub.uni-regensburg.de

Holmstrom, Bengt., & Tirole, Jean. (2000). Liquidity and Risk Management. Journal of Money, Credit and Banking, 32(3), 295-319.

Kopecky, K., & Van Hoose, D. (2004a). A Model of the Monetary Sector with and Without Binding Capital Requirements. Journal of Banking and Finance, 28, 633-46.

Kopecky, K., & Van Hoose, D. (2004b). Bank Capital Requirements and the Monetary Transmission Mechanism. Journal of Macroeconomics, 26, 443-64.

Markovic, Bojan. (2006). Bank Capital Channels in the Monetary Transmission Mechanism. Working Paper, 313.

Tanaka, M. (2002). How Do Bank Capital and Capital Adequacy Regulation Affect the Monetary Transmission Mechanism? CESIFO Working Paper, 799.

Van den Heuvel, Skander J. (2006). The Bank Capital Channel of Monetary Policy. Retrieved from econpapers.repec.org, 512.




DOI: http://dx.doi.org/10.3968%2Fj.css.1923669720120804.1231

Refbacks

  • There are currently no refbacks.


Reminder

If you have already registered in Journal A and plan to submit article(s) to Journal B, please click the CATEGORIES, or JOURNALS A-Z on the right side of the "HOME".


We only use three mailboxes as follows to deal with issues about paper acceptance, payment and submission of electronic versions of our journals to databases: caooc@hotmail.com; css@cscanada.net; css@cscanada.org

Copyright © Canadian Academy of Oriental and Occidental Culture

Address: 758, 77e AV, Laval, Quebec, H7V 4A8, Canada

Telephone: 1-514-558 6138

Http://www.cscanada.net Http://www.cscanada.org

E-mail:css@cscanada.net, css@cscanada.org