Inflation versus central bank independence? Banking regulation and financial stability in the US and Germany
Most recent discussion of the relationship between the banking system and macroeconomic performance have focused on the deegree of independence of the central bank as the key variable influencing the choice between inflation and unemployment. This paper argues that the stability of the financial system is a goal of central banks with at least as much priority as the other two goals, and that tight money policies implemented to achieve monetary stability may conflict with the goal of financial system stability; furthermore, the nature of regulation and underlying health of the financial system is a crucial factor influencing the extent of the monetary versus financial system stability tradeoff dilemma. The erosion of prudential regulation and increasing weakness of large segments of the financial system in the US, in large part due to arbitrage between competing regulatory authorities, has since the 1960s put the Federal Reserve Board in the dilemma of controlling inflation versus protecting financial system stability. The German Bundesbank in contrast has had a freer reign in monetary policy, since corporatist bank regulation including strict prudential standards and the prohibition of potential bank competitors has resulted in a stronger underlying financial structure.
|Date of creation:||1995|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: ++49 - 30 - 25491 - 0
Fax: ++49 - 30 - 25491 - 684
Web page: http://www.wzb.eu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Patric H. Hendershott & Edward J. Kane, 1992. "CAUSES AND CONSEQUENCES OF THE 1980s COMMERCIAL CONSTRUCTION BOOM," Journal of Applied Corporate Finance, Morgan Stanley, vol. 5(1), pages 61-70.
- Joshua N. Feinman, 1993. "Reserve requirements: history, current practice, and potential reform," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 569-589.
- Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
- Pindyck, Robert S. & Solimano, Andres, 1993.
"Economic instability and aggregate investment,"
Policy Research Working Paper Series
1148, The World Bank.
- Robert S. Pindyck & Andres Solimano, 1993. "Economic Instability and Aggregate Investment," NBER Working Papers 4380, National Bureau of Economic Research, Inc.
- Pindyck, Robert S. & Solimano, Andrés., 1993. "Economic instability and aggregate investment," Working papers 3552-93., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Gilson, Stuart C. & John, Kose & Lang, Larry H. P., 1990. "Troubled debt restructurings*1: An empirical study of private reorganization of firms in default," Journal of Financial Economics, Elsevier, vol. 27(2), pages 315-353, October.
- anonymous, 1994. "Studies on causes and consequences of the 1989-92 credit slowdown," Monograph, Federal Reserve Bank of New York, number 1994socacot9c.
- Pindyck, Robert S, 1993. "A Note on Competitive Investment under Uncertainty," American Economic Review, American Economic Association, vol. 83(1), pages 273-77, March.
- Wolfgang H. Reinicke, 1995. "Banking, Politics And Global Finance," Books, Edward Elgar, number 367, July.
- Maximilian J.B. Hall, 1993. "Banking Regulation And Supervision," Books, Edward Elgar, number 201, July.
- Robert N. McCauley & Rama Seth, 1992. "Foreign bank credit to U.S. corporations: the implications of offshore loans," Quarterly Review, Federal Reserve Bank of New York, issue Spr, pages 52-65.
- Albert M. Wojnilower, 1980. "The Central Role of Credit Crunches in Recent Financial History," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(2), pages 277-340.
- Dixit, Avinash, 1993. "Choosing among alternative discrete investment projects under uncertainty," Economics Letters, Elsevier, vol. 41(3), pages 265-268.
- Olivier Blanchard & Stanley Fischer, 1993. "Editorial in "NBER Macroeconomics Annual 1993, Volume 8"," NBER Chapters, in: NBER Macroeconomics Annual 1993, Volume 8, pages 1-10 National Bureau of Economic Research, Inc.
- Linda S. Kole & Ellen E. Meade, 1995. "German monetary targeting: a retrospective view," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 917-931.
- Maximilian J.B Hall, 2002. "Banking Regulation and Supervision in Japan," FMG Special Papers sp139, Financial Markets Group.
When requesting a correction, please mention this item's handle: RePEc:zbw:wzbece:fsi95312. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.