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Macroprudential regulation in the post-crisis era: Has the pendulum swung too far?

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  • Lyu, Juyi
  • Le, Vo Phuong Mai
  • Meenagh, David
  • Minford, Patrick

Abstract

This paper presents an institutional model to investigate the cooperation between a government and a central bank. The former selects the monetary policy and then delegates the organization of macroprudential policy to the latter. Their policy stances are the result of sequential constrained utility maximization. Using indirect inference, we find a set of coefficients that can capture the UK policy stances for 1993–2016. This suggests post-crisis regulation has been overly intrusive. Finally, we show that this regulatory dilemma can be avoided by committing to a highly stabilizing monetary regime that uses QE extensively.

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  • Lyu, Juyi & Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick, 2021. "Macroprudential regulation in the post-crisis era: Has the pendulum swung too far?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:intfin:v:74:y:2021:i:c:s1042443121001001
    DOI: 10.1016/j.intfin.2021.101381
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    More about this item

    Keywords

    Bank regulation; Financial stability; Monetary policy; Public choice theory;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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