New instruments for banking regulation and monetary policy after the crisis
AbstractThis paper analyzes two instruments - asset-based reserve requirements put forward by Thomas Palley and asset-based capital requirements proposed by Charles Goodhart and Avinash Persaud - regarding their merits in reducing excessive asset price inflation. A theoretical framework of asset pricing based on the ideas of Keynes and Minsky is developed, within which the working of the instruments is demonstrated and analyzed. It is shown that in theory both instruments are able to reduce excessive asset price inflation by reducing the amount of credit money and investment flowing from financial institutions into a booming sector. It is found that asset-based reserve requirements will only work through a predictable price effect, while the effect of asset-based capital requirements is hard to predict and may even become a quantitative supply constraint. Hence, it is concluded that due to the higher predictability of asset-based reserve requirements those are more suitable for the task of tackling asset price bubbles. --
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Bibliographic InfoPaper provided by Berlin School of Economics and Law, Institute for International Political Economy (IPE) in its series IPE Working Papers with number 13/2012.
Date of creation: 2012
Date of revision:
Monetary Policy; Banking Regulation; Asset Prices; Bubbles; Minsky; Financial Instability Hypothesis; Asset Based Reserve Requirements; Capital Requirements; Macroprudential Regulation;
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Find related papers by JEL classification:
- E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-01 (All new papers)
- NEP-BAN-2012-07-01 (Banking)
- NEP-CBA-2012-07-01 (Central Banking)
- NEP-HME-2012-07-01 (Heterodox Microeconomics)
- NEP-MAC-2012-07-01 (Macroeconomics)
- NEP-MON-2012-07-01 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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