Effects Of The Capital Requirement Ratio Of Macro-economy

In the post-crisis era, the introduction of Basel III is designed to enhance theability to resist risks within the banking sector in the long term to ensure stability ofthe entire financial system. However, in the short term, the impact of Basel III on themacro-economy still has to be discussed, especially the more stringent requirement ofcapital adequacy which is causing a greater impact on the economy is the focus ofacademic debate.In order to quantify the macroeconomic impact under the framework Basel IIIcapital adequacy ratio better, in this paper, we established a DSGE model containsmicrocosmic behavior of banks. By characterizing the family, manufacturers,producers of capital goods, commercial banks and the central bank’s optimal behavior,we make a body of the other macroeconomic sectors linked to introduce the capitaladequacy ratio of commercial banks into the overall impact of the macroeconomicframework for discussion.By making Bayesian parameter estimation and numerical simulation analysis forDSGE models, we explored the transmission mechanism of random capital adequacyratio, and introduced LGD to portray the effect of macroeconomic effects in(inverse)pro-cyclical capital regulation. In addition, based on the capital adequacy ratio of themonetary policy transmission channels, we discussed the different the macroeconomicimpact of capital adequacy ratio under different monetary policy rules, and ultimatelyget the following important conclusions:First, if the capital adequacy ratio rose from8%to11.5%, investment would fallby about0.15%, GDP would fall by about0.07%, whose impact is about one tenth oftechnology shocks. Second, in the real economy, the impact of LGD shocks wouldexponentially magnified its impact on macroeconomic in pro-cyclical capitalregulatory, thus setting countercyclical capital rules is essential for effectiveimplementation of capital supervision. Third, the impact of monetary policy under theTaylor rule changes in interest rates will offset part of the changes caused by thecapital adequacy ratio, thereby reducing its impact on the economy.Finally, this paper puts forward policy recommendations based on the conclusions.