Simple Rules for Financial Stability

John Taylor

No 12-031, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: This paper considers three simple rules-based strategies to improve and maintain financial stability. The first reforms the rules of bankruptcy to handle large financial institutions with a minimum of disruption. The second would focus macro-prudential policy on setting permanent and appropriate capital and subordinated debt ratios rather than discretionary countercyclical adjustments. The third would re-establish a rules-based monetary policy. Taken together these three reforms would constitute a sound overall strategy to improve financial and economic stability.

Date: 2013-04
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