CENTRAL BANK INDEPENDENCE AND MACRO-PRUDENTIAL REGULATION

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RAHMANI MEHRDAD; ABOUNOORI ESMAEIL

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Paper Information

Journal: TREND (TREND OF ECONOMIC RESEARCH) Year:2015 | Volume:22 | Issue:69 Page(s): 155-187

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Information Journal Paper

Title

CENTRAL BANK INDEPENDENCE AND MACRO-PRUDENTIAL REGULATION

Author(s)

RAHMANI MEHRDAD | ABOUNOORI ESMAEIL | Issue Writer Certificate

Keywords

MONETARY POLICYQ2

MACRO-PRUDENTIAL REGULATIONQ2

CENTRAL BANK INDEPENDENCEQ2

TIME INCONSISTENCYQ1

Abstract

We consider the optimality of various institutional arrangements for agencies that conduct macro-prudential regulation and monetary policy. When a Central Bank is in charge of price and financial stability, a new time inconsistency problem may arise. Ex-ante, the Central Bank chooses the socially optimal level of inflation. Ex-post, however, the Central Bank chooses inflation above the social optimum to reduce the real value of private debt. This inefficient outcome arises when macro-prudential policies cannot be adjusted as frequently as monetary. Importantly, this result arises even when the Central Bank is politically independent. We then consider the role of political pressures in the spirit of Barro and Gordon (1983). We show that if either the macro-prudential regulator or the Central Bank (or both) are not politically independent, separation of price and financial stability objectives does not deliver the social optimum.

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APA: Copy

RAHMANI, MEHRDAD, & ABOUNOORI, ESMAEIL. (2015). CENTRAL BANK INDEPENDENCE AND MACRO-PRUDENTIAL REGULATION. TREND (TREND OF ECONOMIC RESEARCH), 22(69), 155-187. SID. https://sid.ir/paper/202177/en

Vancouver: Copy

RAHMANI MEHRDAD, ABOUNOORI ESMAEIL. CENTRAL BANK INDEPENDENCE AND MACRO-PRUDENTIAL REGULATION. TREND (TREND OF ECONOMIC RESEARCH)[Internet]. 2015;22(69):155-187. Available from: https://sid.ir/paper/202177/en

IEEE: Copy

MEHRDAD RAHMANI, and ESMAEIL ABOUNOORI, “CENTRAL BANK INDEPENDENCE AND MACRO-PRUDENTIAL REGULATION,” TREND (TREND OF ECONOMIC RESEARCH), vol. 22, no. 69, pp. 155–187, 2015, [Online]. Available: https://sid.ir/paper/202177/en

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