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Monetary Policy And Macro-Prudential Regulation: The Risk-Sharing Paradigm

In: Macroeconomic and Financial Stability: challenges for Monetary Policy

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  • Atif Mian

    (Princeton University)

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Atif Mian, 2014. "Monetary Policy And Macro-Prudential Regulation: The Risk-Sharing Paradigm," Central Banking, Analysis, and Economic Policies Book Series, in: Sofía Bauducco & Lawrence Christiano & Claudio Raddatz (ed.),Macroeconomic and Financial Stability: challenges for Monetary Policy, edition 1, volume 19, chapter 10, pages 315-330, Central Bank of Chile.
    • Handle: RePEc:chb:bcchsb:v19c10pp315-330
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    References listed on IDEAS

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    1. Mishkin, Frederic S., 1978. "The Household Balance Sheet and the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 38(4), pages 918-937, December.
    2. Atif Mian & Amir Sufi, 2011. "House Prices, Home Equity-Based Borrowing, and the US Household Leverage Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 2132-2156, August.
    3. Kahle, Kathleen M. & Stulz, René M., 2013. "Access to capital, investment, and the financial crisis," Journal of Financial Economics, Elsevier, vol. 110(2), pages 280-299.
    4. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1449-1496.
    5. Martha L. Olney, 1999. "Avoiding Default: The Role of Credit in the Consumption Collapse of 1930," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 319-335.
    6. Barry Eichengreen & Kris J. Mitchener, 2004. "The Great Depression As A Credit Boom Gone Wrong," Research in Economic History, in: Research in Economic History, pages 183-237, Emerald Group Publishing Limited.
    7. Atif R. Mian & Amir Sufi, 2012. "What explains high unemployment? The aggregate demand channel," NBER Working Papers 17830, National Bureau of Economic Research, Inc.
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