An evolutionary game theory model for the inter-relationships between financial regulation and financial innovation

Hui An, Ruibo Yang, Xuejiao Ma, Siqi Zhang and Sardar M.N. Islam

The North American Journal of Economics and Finance, 2021, vol. 55, issue C

Abstract: Financial regulation and financial innovation tend to show a dynamic game process of ‘regulation-innovation-re-regulation-re-innovation’. This paper constructs an evolutionary game model to simulate the above phenomena for analyzing the stable equilibrium strategies between financial institutions and regulation institutions. Previous studies mainly stay in a theoretical perspective; instead, this study uses the financial and macroeconomic data of the U.S. during 1947–2007 to numerically demonstrate the dynamic evolution paths of financial regulation and financial innovation. This study finds that the financial regulation and financial innovation of the U.S. presents a dynamic adjustment process by promoting the development of each other. Both regulatory and innovative strategies should be coordinated in the evolutionary progress in a timely and coordinated reason. This study has great referential value for policy makers to balance regulation and innovation in the financial industry and for avoiding financial crises.

Keywords: Evolutionary game; Financial regulation; Financial innovation; Financial crisis (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:55:y:2021:i:c:s1062940820302266

DOI: 10.1016/j.najef.2020.101341

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