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Prudential policy treatments to the COVID-19 economic crisis: an assessment of the effects

Published online by Cambridge University Press:  11 August 2025

Ivan De Lorenzo Buratta ,
Diana Lima  and
Duarte Maia
Ivan De Lorenzo Buratta*
Affiliation:
Financial Markets and Intermediaries Analysis, Prometeia SpA, Bologna 40137, Italy
Diana Lima
Affiliation:
Financial Stability, Banco de Portugal, Lisboa, Portugal
Duarte Maia
Affiliation:
Financial Stability, Banco de Portugal, Lisboa, Portugal
*
Corresponding author: Ivan De Lorenzo Buratta; Email: ivan.delorenzoburatta@prometeia.com
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Abstract

Using a dynamic stochastic general equilibrium model (DSGE) model with households’, firms’, and banks’ default calibrated for Portugal, we assess the impact of some prudential policy measures adopted to mitigate COVID-19 economic effects: the flexibility measure and the dividends pay-out restriction. The joint use of the measures reinforces the support for credit achieved using the flexibility measure only and reduces the effort of banks to rebuild capital buffers once the pandemic crisis is over. Given the recovery and the measures’ withdrawal, we also consider distinct paths for replenishing capital buffers. Shorter transitions strengthen banks’ resilience, but longer transitions may be more suitable to ensure a smooth flow of lending to the economy.

Keywords

macroprudential policyCOVID-19 pandemiccapital-based instrumentsPortugalE3E44G01G21052

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Type
Articles
Information
Macroeconomic Dynamics , Volume 29 , 2025 , e129
Copyright
© The Author(s), 2025. Published by Cambridge University Press

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