Monetary policy and macro-prudential regulation: the risk-sharing paradigm

Atif Mian (1)
(1) , Belgium

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.

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Authors

Atif Mian
Mian, A. . (2013). Monetary policy and macro-prudential regulation: the risk-sharing paradigm. ECONOMÍA CHILENA, 16(2), 54–66. https://doi.org/10.36923/economa.v16i2.166

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