https://macropaperwarehouse.com/authors/george-j.-bratsiotis/George J. BratsiotisHugo -- gohugo.ioen-ushttps://macropaperwarehouse.com/papers/monetary-and-macroprudential-policy-and-welfare-in-an-estimated-four-agent-new-keynesian-model/https://macropaperwarehouse.com/papers/monetary-and-macroprudential-policy-and-welfare-in-an-estimated-four-agent-new-keynesian-model/<p>This paper introduces a four-agent estimated New Keynesian DSGE model—comprising banked simple households, underbanked simple households, firm owners, and bank owners—to examine agent-specific and social welfare effects of monetary and macroprudential policy, estimated on U.S. quarterly data (1985Q1–2016Q4) via Bayesian methods. The model features two layers of endogenous default probability (for borrowers and banks), nominal, real, and financial frictions, and trend inflation and stochastic growth. The optimal bank capital requirement ratio (CRR) is estimated at 12.6%, which is 2.1% above Basel III&rsquo;s 10.5%; increasing CRR up to approximately 12.2% raises welfare for all four agent types, though with smaller gains for credit-reliant simple households and firm owners. Countercyclical capital buffers benefit firm owners and bank owners with smaller gains for simple households. Coordinated monetary and macroprudential policy yields higher social welfare than non-coordinated policies.</p>