Job market candidate
Tel. +34 93 542 1621
Available for Interviews at :
Simposio de la Asociación Española de Economía (SAEe), December 14-16, Barcelona, Spain
Allied Social Science Associations (ASSA), January 5-7, Philadelphia, US
Primary Field: Macroeconomics.
Secondary Fields: Banking. Financial Economics
"Macroprudential Policies in an Open Economy" (Job Market Paper)
I develop an open economy model with banks facing a foreign borrowing limit. The interaction of banks' limited liability and deposit insurance leads to a socially excessive bank risk-taking, which involves the volume of banks' credit and not the type of credit. The novel result is that under a realistic calibration a lower foreign interest rate reduces the excessive bank risk-taking. Since the foreign borrowing limit is binding, this lower rate does not boost banks' credit, but rather decreases it since for a given capital the lower rate reduces the banks' default probability which diminishes risk-taking incentives. By acting through the same mechanism, a greater access to the international credit markets reduces the excessive risk-taking. Hence, less banking regulation, aimed to achieve the socially efficient risk-taking, is required after a foreign rate reduction and a higher foreign borrowing limit.