CFCM 24/04: Robust design of countercyclical capital buffer rules

Summary

In this paper, we design countercyclical capital buffer rules that perform robustly across a wide range of Dynamic Stochastic General Equilibrium (DSGE) models. These rules offer valuable guidance for policymakers uncertain about the most appropriate model(s) for decision-making. Our results show that robust rules call for a relatively restrained response from macroprudential authorities. The cost of insuring against model uncertainty is moderate, emphasizing the practicality of following these robust countercyclical capital buffer rules in uncertain economic environments. 

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Authors

Dominik Hecker, Hun Jang, Margarita Rubio and Fabio Verona

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