This paper studies the effectiveness of countercyclical capital requirements and contingent
convertible capital (CoCos) in limiting financial instability, and its associated influence on the
real economy. To do this, I augment both features into a standard business cycle framework
with an equity market and a banking sector. The model is calibrated to real US data and
used for simulations. The findings suggest that a countercyclical capital adequacy rule and
CoCos provide an effective dual approach to macroprudential policy. On the one hand, a …