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Financial Stability and the Role of the Financial Policy Committee

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  • Roger E. A. Farmer

Abstract

This paper distinguishes institutional from systemic explanations for the cause of financial instability. I argue that financial crises are systemic, and as a consequence, the maintenance of financial stability requires more than simple regulation of existing institutions. The newly created Financial Policy Committee of the Bank of England, should actively manage the asset portfolio of the Treasury, with the aim of stabilizing the price to earning (PE) ratio of a broad stock market index.

Suggested Citation

  • Roger E. A. Farmer, 2014. "Financial Stability and the Role of the Financial Policy Committee," Manchester School, University of Manchester, vol. 82(S1), pages 35-43, September.
  • Handle: RePEc:bla:manchs:v:82:y:2014:i:s1:p:35-43
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    File URL: http://hdl.handle.net/10.1111/manc.12070
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    References listed on IDEAS

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    1. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    2. Farmer, Roger E. A., 2014. "How the Economy Works: Confidence, Crashes and Self-Fulfilling Prophecies," OUP Catalogue, Oxford University Press, number 9780199360307.
    3. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
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