Monetary policy and macro-prudential regulation: the risk-sharing paradigm

TitleMonetary policy and macro-prudential regulation: the risk-sharing paradigm
Publication TypeJournal Article
Year of Publication2013
AuthorsMian A
JournalJournal Economía Chilena (The Chilean Economy)
Volume16
Pagination54–66
AbstractHow should monetary policy and macro-prudential regulation respond to the dangers of financial bubbles? I argue that bubbles - and their collapse - become a serious problem when there is inadequate risk-sharing. Neither monetary policy nor traditional macro-prudential regulation is designed to deal with this risk-sharing problem. Monetary policy has little hope of either accurately anticipating bubbles or dealing effectively with their consequences. Traditional approaches to macro-prudential regulation are unlikely to succeed as they are based on the false premise that risk can always be quantified up front. I propose considering "ex-ante flexible contracting" as a longer-term response to the financial stability question.
URLhttp://si2.bcentral.cl/public/pdf/revista-economia/2013/ago/recv16n2ago2013pp54-66.pdf