Abstract for: Analyzing the Effects of Basel IV Regulations on Macroeconomic Fluctuations: A Money View Approach

The Basel Committee on Banking Supervision, established in 1974 with the aim of introducing global standards in banking regulations, has since signed various regulations known as 'Basel Regulations'. The last of them is known as Basel IV, which is still in the transition period. Understanding how these regulations will affect the feedback loops running through the financial sector is crucial for policymakers to prevent from their unintended consequences. In order to explore the dynamic macroeconomic implications of Basel IV regulations, a system dynamics model will be built and simulated under alternative scenarios. The system dynamics model will be based on two methodological foundations in the economics literature. The first one is the Stock-Flow Consistent (SFC) framework pioneered by Godley and Lavoie (2007). Another approach used in the development of conceptual model is the Perry Mehrling’s Money View approach. The conceptual stock-flow-consistent system dynamics model has been developed. The model structure consists of five sectors: Household sector, firm sector, traditional banking sector, shadow banking sector, central bank, and the government. The simulation model is currently being built using Vensim software. To date, household, firm and traditional bank sectors have been developed and tested for the existence of dynamic equilibrium and for robustness against extreme condition tests. Basel IV regulations are currently in transition and there is still a lack of sufficient research in the literature on how Basel IV regulations will impact macroeconomic fluctuations. This study contributes to the literature by uniquely combining the money view approach and stock-flow-consistent framework within a system dynamics model. Acknowledgement: This research was supported by the Scientific and Technological Research Council of Türkiye (TUBITAK) under the 2219 International Postdoctoral Research Fellowship Program.