New research examines the stabilisation benefits of rules for the countercyclical capital buffer

The Central Bank of Ireland has released a new Research Technical Paper by Luca Onorante, Matija Lozej and Ansgar Rannenberg entitled “Countercyclical Capital Regulation in a Small Open Economy DSGE Model”.

• Paper assesses the macroeconomic performance of different ways (“rules”) in which a regulator might adjust the countercyclical capital buffer (CCyB) banks are subject to.
• Performance of a CCyB rule depends on whether the indicator variable (the credit gap or the house price gap) moves procyclically after the shock.
• Adjusting the CCyB based on the house price gap can be more stabilising in some circumstances, particularly for shocks related to foreign demand for Irish goods.

Notes:

The views presented in Research Technical Papers are those of the authors alone and do not necessarily represent the official views of the Central Bank of Ireland.

Research Technical Papers are published on the Central Bank’s website here.