The Research On Effects Of Counter-cyclical Capital Regulation On China's Macroeconomic Fluctuations

In the aftermath of the financial crisis, counter-cyclical capital regulation policy proposed by Basel ? aims at avoiding banks' pro-cyclical behavior and enhancing anti-risk ability of the banking industry in the long term so as to ensure the stability of the entire financial system. China also referred to the Basel ? and put forward the counter-cyclical capital regulation requirements, but it didn't propose the specific scheme of the implementation. Therefore, it is necessary to consider the adaptability of the policy and the impact of macroeconomic fluctuations in China for the subsequent use of the policy.In order to better quantify the impact of counter-cyclical capital regulation on macroeconomic fluctuations in China, this paper establishes a DSGE model contains microscopic behavior and capital regulation of bank, which links the micro-economic sectors and macroeconomic variables. Characterizing the optimal behavior decisions by households, firms, capital goods producers, commercial banks and policy makers, I analyzed the model which contained the counter-cyclical capital regulation policy and commercial banks' capital adequacy regulation behavior.By DSGE model simulation analysis this paper discusses the transmission mechanism of the impact of the capital regulation, the introduction of counter-cyclical capital regulation measures, and the characterization of its impact on macroeconomic fluctuations. Moreover, this article also introduces the impact of the capital regulation shocks and monetary policy shocks on different macroeconomic fluctuations of counter-cyclical capital regulation under the pro-cyclical capital regulation behaviors which is based on the basic model, and draws the following important conclusions:Firstly, the counter-cyclical capital regulation can make the economy fluctuations smooth in the short and long-term. Secondly, counter-cyclical capital regulation extends the duration of policy action compared with without counter-cyclical regulation. Thirdly, pro-cyclical behavior will amplify macroeconomic fluctuations, and make the effect of policies deviate from the expected, so the introduction of counter cyclical capital regulation is important. Fourthly, the counter-cyclical regulation improves the welfare level of the whole society.Finally, I suggest it is necessary for China to implement counter-cyclical capital regulation. Regulatory authorities should formulate suitable policy of counter-cyclical capital regulation, and commercial banks should support the implementation of the policy.