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Simple Rules for Financial Stability

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  • John Taylor

    (Stanford University)

Abstract

This paper considers three simple rules-based strategies to improve and maintain financial stability. The first reforms the rules of bankruptcy to handle large financial institutions with a minimum of disruption. The second would focus macro-prudential policy on setting permanent and appropriate capital and subordinated debt ratios rather than discretionary countercyclical adjustments. The third would re-establish a rules-based monetary policy. Taken together these three reforms would constitute a sound overall strategy to improve financial and economic stability.

Suggested Citation

  • John Taylor, 2013. "Simple Rules for Financial Stability," Discussion Papers 12-031, Stanford Institute for Economic Policy Research.
    • Handle: RePEc:sip:dpaper:12-031
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    File URL: http://www-siepr.stanford.edu/repec/sip/12-031.pdf
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    References listed on IDEAS

    as
    1. Darrell Duffie, 2010. "The Failure Mechanics of Dealer Banks," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 51-72, Winter.
    2. John B. Taylor, 2013. "A Review of Recent Monetary Policy," Economics Working Papers 13103, Hoover Institution, Stanford University.
    3. Kenneth E. Scott & John B. Taylor (ed.), 2012. "Bankruptcy Not Bailout," Books, Hoover Institution, Stanford University, number 5, December.
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    Cited by:

    1. Günes Kamber & Özer Karagedikli & Christie Smith, 2015. "Applying an Inflation-Targeting Lens to Macroprodential Policy "Institutions"," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 395-429, September.

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