A Study On the Optimal Liquidity Regulation Policy Under Macroprudential Framework
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| Title | A Study On the Optimal Liquidity Regulation Policy Under Macroprudential Framework
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| Author | Jiang Peng and Fei Fangyu |
| Organization | China Academy of Financial Research, Shanghai Jiaotong University |
| Email | jp021@126.com; fyfei@sjtu.edu.cn |
| Key Words | Illiquid Funding;Liquidity Regulation; Macroprudential Regulation;Bank Systemic Risk |
| Abstract | Under macroprudential regulation framework, by using liquidity regulation factor and liquidity requirement level we invent an abstract liquidity regulation constraint subject to what we develop a static general equilibrium model of bank liquidity regulation. We show explicit liquidity regulation effect can be replicated by an implicit Pigovian tax on bank's illiquid funding but the social optimal liquidity regulation effect cannot guarantee the social optimal allocation. Therefore, under macroprudential regulation framework, taxing the illiquid funding is the social optimal liquidity regulation policy. |
| Serial Number | WP161 |
| Time | 2012-02-14 |
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