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Monetary Policy And Macro-Prudential Regulation: The Risk-Sharing Paradigm

In: Macroeconomic and Financial Stability: challenges for Monetary Policy

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  • Atif Mian

    (Princeton University)

Abstract

How should monetary policy and macro-prudential regulation respond to the dangers of financial bubbles? I argue that bubbles - and their collapse - become a serious problem when there is inadequate risk-sharing. Neither monetary policy nor traditional macro-prudential regulation is designed to deal with this risk-sharing problem. Monetary policy has little hope of either accurately anticipating bubbles or dealing effectively with their consequences. Traditional approaches to macro-prudential regulation are unlikely to succeed as they are based on the false premise that risk can always be quantified up front. I propose considering "ex-ante flexible contracting" as a longer-term response to the financial stability question.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Atif Mian, 2014. "Monetary Policy And Macro-Prudential Regulation: The Risk-Sharing Paradigm," Central Banking, Analysis, and Economic Policies Book Series, in: Sofía Bauducco & Lawrence Christiano & Claudio Raddatz (ed.),Macroeconomic and Financial Stability: challenges for Monetary Policy, edition 1, volume 19, chapter 10, pages 315-330, Central Bank of Chile.
    • Handle: RePEc:chb:bcchsb:v19c10pp315-330
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