We provide a micro-based rationale for macroprudential capital regulation of financial intermediaries (banks) by developing a model in which bankers can privately undertake a costly effort and reduce the probability of adverse shocks to their asset holdings that force liquidation (deterioration...

Bayesian approaches to the estimation of DSGE models are becoming increasingly popular. Prior knowledge is normally formalized either directly on deep parameters' values (‘microprior’) or indirectly, on macroeconomic indicators, e.g. moments of observable variables (‘macroprior’). We...