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Macroprudential Regulation Versus Mopping Up After the Crash

  • Olivier Jeanne
  • Anton Korinek

We study the interplay of optimal ex-ante (macroprudential) and ex-post (monetary or fiscal stimulus) measures to respond to systemic financial crises in a tractable model of fire sales. We find that it is generally optimal to use both, rejecting the Greenspan doctrine to only intervene ex post. Optimal macroprudential policy resolves the time consistency problems associated with stimulus measures. However, if macroprudential policy is suboptimal, for example because of circumvention, only monetary stimulus should be used, and it is desirable to commit to smaller stimulus. Furthermore, accumulating macroprudential tax revenue in a bailout fund used for stimulus measures is undesirable.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18675.

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Date of creation: Jan 2013
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Handle: RePEc:nbr:nberwo:18675
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  1. Huigang Chen & Eric Young & Christopher Otrok & Alessandro Rebucci & Gianluca Benigno, 2013. "Optimal Policy for Macro-Financial Stability," 2013 Meeting Papers 636, Society for Economic Dynamics.
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  4. Olivier Jeanne & Anton Korinek, 2010. "Managing Credit Booms and Busts: A Pigouvian Taxation Approach," Working Paper Series WP10-12, Peterson Institute for International Economics.
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  8. Enrico Perotti & Javier Suarez, 2011. "A Pigovian Approach to Liquidity Regulation," Tinbergen Institute Discussion Papers 11-040/2/DSF15, Tinbergen Institute.
  9. Javier Bianchi, 2012. "Efficient bailouts?," Globalization and Monetary Policy Institute Working Paper 133, Federal Reserve Bank of Dallas.
  10. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  11. Bengt Holmstrom & Jean Tirole, 1998. "Private and Public Supply of Liquidity," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 1-40, February.
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  14. Anton Korinek & Jonathan Kreamer, 2013. "The Redistributive Effects of Financial Deregulation," NBER Working Papers 19572, National Bureau of Economic Research, Inc.
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