Open AccessMacroprudential regulation as part of the Mexican policy toolkit
Author(s) -
Carlos Alberto Zarazúa Juárez
Publication year - 2020
Language(s) - English
Resource type - Journals
ISSN - 1665-5346
DOI - 10.21919/remef.v16i1.568
Subject(s) - dynamic stochastic general equilibrium , macroprudential regulation , economics , welfare , monetary economics , debt , capital (architecture) , loan , monetary policy , loan to value ratio , macroeconomics , basel iii , capital requirement , financial system , systemic risk , financial crisis , finance , microeconomics , market economy , history , mortgage insurance , archaeology , casualty insurance , incentive , insurance policy
The objective of this work is to assess the effect of implementing countercyclical macroprudential regulation in Mexico with the objective of verify whether this type of policy is welfare-improving. Using a DSGE model, two kinds of macroprudential rules are tested: countercyclical bank capital requirements and countercyclical loan-to-value ratios. Results suggest that these rules are welfare-improving and avoid the formation of credit bubbles as well as facilitate loans in the presence of macroeconomic crises. Results suggest that the use of countercyclical rules is effective in keeping the debt level according to its long-term equilibrium. This paper presents a theoretical framework to analyze banking regulation for policy purposes and is the first attempt to analyze countercyclical regulation in Mexico using a microfounded model. Results can be used to rationalize the use of macroprudential tools during the COVID‑19 pandemic given the current interventions in the Mexican banking system.