Collateral Value,bank Leverage Regulation And Macroeconomic Fluctuations

According to the "Monthly Analysis Report on the Development of China's Housing Market"issued by the Chinese Academy of Social Sciences,although the decline in the real estate price slowed down and the number of cities fell in December 2018,the overall price of housing still showed a steady decline.As the leading industry of China's national economy,China's real estate prices have shown a downward trend,which may have a certain impact on the Chinese economy.Considering the economic facts of falling house prices in China,the value of collateral has declined due to the real estate mortgage restraint mechanism,which has worsened the bank's balance sheet to some extent.China's financial market is mainly bank-based.Therefore,house price fluctuations can be mortgaged.The product channel affects the bank's balance sheet,which determines the bank's credit volume,causing certain fluctuations in the real economy and financial markets.At the same time,in order to maintain the stability of the entire macro-economy,the authorities have strengthened supervision over the banking industry.Therefore,once house prices fall,the credit market friction and the increasing supervision of banks would ease macroeconomic fluctuations and maintain the stability of the banking system or not.This is the issue which I will explore.In order to analyze the impact of bank regulation on macroeconomics under the fall of house prices,this paper constructs an RBC model that includes the banking sector,and will cause three exogenous scenarios of falling house prices,namely,negative technology shocks,household real estate demand shocks,and the impact of corporate borrowing capacity is included in the analytical framework of the model,and then the bank's different levels of leverage regulation are considered,and its impact on economic fluctuations is analyzed.The results of the model show that negative technology shocks,family housing demand shocks and corporate borrowing capacity shocks will cause house prices to fall,affected by collateral constraints in the credit market and regulatory constraints on bank leverage,and the economy will have a downward trend;various negative shocks will lead to housing prices.When falling,the decline in the value of collateral caused the bank's balance sheet to deteriorate,the economy experienced downward volatility,and the regulatory authorities tightened the leverage ratio of the banking sector,causing endogenous financial friction to intensify,bank credit volume to shrink,and the real economy to shrink further.Its economic impact continues to deteriorate,creating a negative spiral effect,causing a recession.Based on the results of the model,this paper proposes that the government should avoid sharp fluctuations in house prices when regulating house prices,and the regulation of leverage should be against the economic trend.