Tuesday, February 12, 2013

A Shameless Plug

. Tuesday, February 12, 2013

While the world of economics is busy debating Jeremy Stein's recent argument that the Fed can -- and sometimes should -- use monetary policy as a de facto regulatory tool (see here for a recent discussion and links), I figure I should use the opportunity to plug a paper of mine which analyzes a similar question in a cross-sectional context. My conclusion is that banks respond to institutional incentives, not just actual central bank policies.

The gist: Copelovitch and Singer found that monetary policy is fundamentally different when central banks are also regulators. Specifically, they argue that when central banks are regulators they tailor monetary policy towards the needs of the firms they regulate. I build off of their framework to show that banks respond to these differences in predictable ways: they act more riskily when central banks are regulators, and note that this effect is independent from actual monetary policies themselves.

The paper is currently in the "revise and resubmit" phase at a journal (it has been revised and resubmitted and I am awaiting a decision), but a previous version is here.

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A Shameless Plug
 

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