Asset Bubble, Bank Risk and " Two-Pillar " Regulation

Hua Ding; Ming Li

doi:10.6981/FEM.202412_5(12).0017

Authors

Hua Ding
Ming Li

DOI:

https://doi.org/10.6981/FEM.202412_5(12).0017

Keywords:

Asset Bubble; Bank Risk;

Abstract

By constructing a DSGE model that includes both credit supply and demand side financial frictions, this paper depicts the risk transmission channels between the macro-economy and the financial system, and on this basis, discusses the regulatory effects of extended monetary policy and different " two-pillar " policy combinations. The research shows that monetary policy combined with counter-cyclical capital buffer policy or dynamic statutory deposit reserve ratio policy can effectively reduce bank risk volatility to achieve economic and financial stability, and the regulation effect is better than that of expansionary monetary policy. Different " two-pillar " policy combinations have different effects on the regulation of economic variables and financial variables. Furthermore, the " two-pillar " policy combination can significantly improve the level of social welfare. Therefore, the " two-pillar " regulatory framework can better achieve the dynamic balance between " stable economy " and " risk prevention ".

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