BoE paper evaluates macro-prudential roles of bank capital regulation and monetary policy
Authors compare effectiveness of policy in wake of credit shock
Following credit shocks, counter-cyclical regulation is more effective than monetary policy in promoting price, financial and macroeconomic stability, a working paper published by the Bank of England finds.
In Macroprudential regulation, credit spreads and the role of monetary policy, William Tayler and Roy Zilberman propose a borrowing cost channel model with endogenous financial frictions, driven by credit risk, bank losses and bank capital costs.
They seek to identify the interactions between
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