Banking and Liquidity

This paper contains a dynamic stochastic general equilibrium model (DSGE) for the further analysis of macroprudential policies. Specifically, it is aimed to analyse how distressed economies, experiencing higher funding costs would react to the monetary changes in the capital regulation. Model is based on earlier papers and incorporates 3 sectors: where financial intermediaries allocate their initial worth along with funds attracted from saving households to the corporate lending. Borrowers are entrepreneurs, who are not subject to default risk in this setting - they allocate raised debt for capital productive use. Banks are subject to capital regulation. This problem is very topical, given economic tensions in some countries under sanctions. The suggested model could be further elaborated and could be used to serve as a policy-making rule in economies experiencing higher cost of funding for financial intermediaries.