Q2. What future works have the authors mentioned in the paper "Capital regulation, risk-taking and monetary policy: a missing link in the transmission mechanism?, december 2008" ?
3 “ Yes ” means that banks can default in equilibrium and this possibility is taken into account in the optimisation problem.
Q3. What is the implication of the monetary policy accelerator?
28The implication is that the link between liquidity and risk-taking can add to the strength of the monetary policy transmission mechanism - a sort of “liquidity multiplier”.
Q4. What is the key characteristic of much of this work?
A key characteristic of much of this work is that it relies on a “no-arbitrage” framework, in which financing constraints resulting from imperfect information play no role (Ross (1988), Campbell et al (1997), Cochrane (2001)).
Q5. What is the common assumption of a representative agent?
The common assumption of model-consistent (rational) expectations and of a representative agent rules out key limitations in risk perceptions and incentives, and makes it harder to incorporate cross-sectional and inter-temporal coordination failures.
Q6. What is the impact of a further-reaching and more risk-sensitive prudential?
To the extent that a further-reaching and more risk-sensitive prudential framework increases its influence on the workings of the financial system and the macroeconomy; it may also become more important in shaping the impact of monetary policy impulses.
Q7. What is the main reason why the model exhibits a boom-bust cycle?
Together with the assumption of wage stickiness and that monetary policy following a traditional Taylor rule, this allows the model to exhibit a boom-bust-type cycle.
Q8. What was the first rule that was agreed on by the Committee on Banking Supervision in the late?
In the late 1980s, the Committee agreed on a set of standards that linked minimum capital requirements to assets in a rather coarse fashion, making very limited distinctions through risk weights between differences in credit risk (“Basel I”).
Q9. What is the role of the monetary policy in ensuring a fully benign increase in persistence?
But under some conditions, especially if risk is underestimated and individual incentives are not aligned with desirable outcomes in the aggregate, the self-stabilising properties of the economy may not suffice to guarantee a fully benign increase in persistence.