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

Atif Mian

Journal Econom a Chilena (The Chilean Economy), 2013, vol. 16, issue 2, 54-66

Abstract: How 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.

Date: 2013
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Related works:
Chapter: Monetary Policy And Macro-Prudential Regulation: The Risk-Sharing Paradigm (2014)
Working Paper: Monetary Policy and Macro-Prudential Regulation: The Risk-Sharing Paradigm (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchec:v:16:y:2013:i:2:p:54-66

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