Abstract
We propose a regulatory approach for restricting debt financing as an amplification mechanism across the financial system. A stylised model illustrates the trade-off between static and time-varying limits on leverage in dampening the financial cycle. Whereas the traditional view on regulation focuses on equity capital as a buffer against exogenous risks, our approach focuses instead on debt financing and endogenous feedback mechanisms.
Original language | English |
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Pages (from-to) | 70-72 |
Journal | Economics Letters |
Volume | 136 |
Issue number | November |
DOIs | |
Publication status | Published - 2015 |