Premium
The Macroeconomic Effects of Shocks to Large Banks’ Capital
Author(s) -
Mésonnier JeanStéphane,
Stevanovic Dalibor
Publication year - 2017
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/obes.12162
Subject(s) - leverage (statistics) , economics , monetary economics , macro , shock (circulatory) , capital (architecture) , monetary policy , capital requirement , macroeconomic model , econometrics , macroeconomics , microeconomics , computer science , medicine , archaeology , machine learning , incentive , history , programming language
We propose a simple approach to quantifying the macroeconomic effects of shocks to large banks’ leverage. We first estimate a standard dynamic model of leverage targeting at the bank level and use it to derive an aggregate measure of the economic capital buffer of large US bank holding corporations. We then evaluate the response of key macro variables to a shock to this aggregate bank capital buffer using standard monetary VAR models. We find that shocks to the capital of large US banks explain a substantial share of the variance of credit to firms and real activity.