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Optimal Bank Regulation and Monetary Policy

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  • John J. Seater

Abstract

A unified model of monetary policy and bank regulation is presented. In accordance with modern banking theory, banks not only intermediate loans and deposits but also provide a financial service affecting aggregate output. Optimal parameter settings for monetary and regulatory policy are derived. New results are that monetary policy affects the expected level as well as the variance of output, bank regulation should change continually in response to the state of the economy, and bank regulation and monetary policy should be tightly coordinated. This last result has important implications for the institutional arrangements for conducting regulatory and monetary policy.

Suggested Citation

  • John J. Seater, 2000. "Optimal Bank Regulation and Monetary Policy," Center for Financial Institutions Working Papers 00-38, Wharton School Center for Financial Institutions, University of Pennsylvania.
    • Handle: RePEc:wop:pennin:00-38
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    File URL: http://fic.wharton.upenn.edu/fic/papers/00/0038.pdf
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    References listed on IDEAS

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    Cited by:

    1. David VanHoose, 2008. "Bank Capital Regulation, Economic Stability, and Monetary Policy: What Does the Academic Literature Tell Us?," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 36(1), pages 1-14, March.

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