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http://hdl.handle.net/10419/59301
  
Title:New instruments for banking regulation and monetary policy after the crisis PDF Logo
Authors:Detzer, Daniel
Issue Date:2012
Series/Report no.:Working Paper, Institute for International Political Economy Berlin 13/2012
Abstract:This paper analyzes two instruments - asset-based reserve requirements put forward by Thomas Palley and asset-based capital requirements proposed by Charles Goodhart and Avinash Persaud - regarding their merits in reducing excessive asset price inflation. A theoretical framework of asset pricing based on the ideas of Keynes and Minsky is developed, within which the working of the instruments is demonstrated and analyzed. It is shown that in theory both instruments are able to reduce excessive asset price inflation by reducing the amount of credit money and investment flowing from financial institutions into a booming sector. It is found that asset-based reserve requirements will only work through a predictable price effect, while the effect of asset-based capital requirements is hard to predict and may even become a quantitative supply constraint. Hence, it is concluded that due to the higher predictability of asset-based reserve requirements those are more suitable for the task of tackling asset price bubbles.
Subjects:Monetary Policy
Banking Regulation
Asset Prices
Bubbles
Minsky
Financial Instability Hypothesis
Asset Based Reserve Requirements
Capital Requirements
Macroprudential Regulation
JEL:E00
E12
E52
G12
G18
Document Type:Working Paper
Appears in Collections:IPE Working Papers, Institute for International Political Economy, HWR Berlin

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