Monday, 6 July 2009

Counter-cyclical capital

I flatter myself that I was one of the first bloggers (although far from the first academic) to comment on the need for anti-cyclical capital rules. Three years later, this is becoming accepted wisdom. People still seem to think that identifying the cycle is difficult. I'm sure it is not, and I identified a number of indicators that could be used to set capital levels in my book. Now the BIS annual report has reviewed several possible indicators: credit spreads, changes in real credit provision, and a composite indicator that combines the credit/GDP ratio and real asset prices. And, rather unsurprisingly, they all work to a reasonable degree.

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2 Comments:

Blogger Charles Butler said...

....and interest rate policy that targets the savings rate.

10:09 am  
Blogger David Murphy said...

Oh yes, I like that one, thank you.

10:36 am  

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