Abstract:
We examine how to implement macroprudential policies – stricter capital requirements and loan-tovalue
limits – in order to mitigate the output loss of corporate debt deleveraging. The analysis is
performed in a dynamic general equilibrium model calibrated to fit the U.S. economy. Stricter capital
requirements are generally costlier in terms of output losses than stricter loan-to-value limits. For
both instruments, the output loss is a convex function of the debt-to-GDP ratio. Finally, the output
loss can be significantly reduced by implementing the requirements gradually, and by activating a
countercyclical capital buffer.