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New instruments for banking regulation and monetary policy after the crisis

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  • Daniel Detzer

    (Berlin School of Economics and Law,Germany)

Abstract

This paper analyzes two instruments - asset-based reserve requirements put forward by Thomas Palley and asset-based capital requirements proposed by Charles Goodhart and Avinash Persaud - regarding their merits in reducing excessive asset price inflation. A theoretical framework of asset pricing based on the ideas of Keynes and Minsky is developed, within which the working of the instruments is demonstrated and analyzed. It is shown that in theory both instruments are able to reduce excessive asset price inflation by reducing the amount of credit money and investment flowing from financial institutions into a booming sector. It is concluded that the effect of asset-based reserve requirements is more predictable and that those are therefore more suitable for the task.

Suggested Citation

  • Daniel Detzer, 2012. "New instruments for banking regulation and monetary policy after the crisis," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 9(2), pages 233-254.
    • Handle: RePEc:elg:ejeepi:v:9:y:2012:i:2:p233-254
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    Cited by:

    1. Eckhard Hein & Daniel Detzer, 2014. "Coping with imbalances in the Euro area: Policy alternatives addressing divergences and disparities between member countries," Working papers wpaper63, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    2. Eckhard Hein & Daniel Detzer, 2015. "Post-Keynesian Alternative Policies to Curb Macroeconomic Imbalances in the Euro Area," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(2), pages 217-236, June.

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    More about this item

    Keywords

    Monetary policy; banking regulation; asset prices; bubbles; Minsky; financial instability hypothesis; asset based reserve requirements; capital require- ments; macroprudential regulation;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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