Economics Insights @ CBS

The regulation of bank capital as a means of smoothing the credit cycle is a central element of forthcoming macro-prudential regimes internationally. For such regulation to be effective in controlling the aggregate supply of credit it must be the case that: (i) changes in capital requirements affect loan supply by regulated banks, and (ii) unregulated substitute sources of credit are unable to offset changes in credit supply by affected banks. This paper examines micro evidence—lacking to date—on both questions, using a unique data set.

We study the equilibrium properties of an overlapping-generation economy where agents choose where to locate and how much housing to own, and city residents vote on the number of new building permits every period. Undersupply of housing persists in equilibrium under conditions we characterize. City residents invest in housing because they expect their investment to be protected by a majority opposed to urban growth. They vote against growth because they have invested in local housing.

The current research explores how awareness of shared attention influences attitude formation. We theorized that sharing the experience of an object with fellow group members would increase elaborative processing, which in turn would intensify the effects of participant mood on attitude formation. Four experiments found that observing the same object as similar others produced more positive ratings among those in a positive mood, but more negative ratings among those in a negative mood.