LAUSR

In the light of the recent crisis, there is now considerable concern about financial cycles and their implications for business fluctuations. Macroprudential policy has thus become part of the policy paradigm. In this work, a model of business cycles is developed which analyses the macroeconomic consequences of a minimum bank capital standard. Numerical examples suggest that capital regulation can be useful in strengthening the resilience of the banking sector, and hence reduce macro-financial volatility.