TY  - JOUR
AU  - Cecchetti,Stephen G.
AU  - Li,Lianfi
TI  - Do Capital Adequacy Requirements Matter for Monetary Policy?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11830
PY  - 2005
Y2  - December 2005
UR  - http://www.nber.org/papers/w11830
L1  - http://www.nber.org/papers/w11830.pdf
N1  - Author contact info:
Stephen G. Cecchetti
Monetary and Economic Department
Bank for International Settlements
Centralbahnplatz 2
4002 Basel
SWITZERLAND
Tel: +41 61 280 8350
Fax: +41 61 280 9113
E-Mail: stephen.cecchetti@bis.org
AB  - Central bankers and financial supervisors often have different goals. While monetary policymakers want to ensure that there are always sufficient lending activities to maintain high and stable economic growth, supervisors work to limit banks. lending capacities in order to prevent excessive risk-taking. To avoid working at cross-purposes, central bankers need to adopt a policy strategy that accounts for the impact of capital adequacy requirements. In this paper we derive an optimal monetary policy that reinforces prudential capital requirements at the same time that it stabilizes aggregate economic activity. We go on to show that policymakers at the Federal Reserve adjust interest rate policy in a way that would neutralize the procyclical impact of bank capital requirements. By contrast, central bankers in Germany and Japan clearly do not act as the theory suggests they should.
ER  -