Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/250331
Year of Publication: 
2021
Series/Report no.: 
Cardiff Economics Working Papers No. E2021/6
Publisher: 
Cardiff University, Cardiff Business School, Cardiff
Abstract: 
This paper presents an institutional model to investigate the cooperation between a government and a central bank. The former selects the monetary policy and then delegates the organization of macroprudential policy to the latter. Their policy stances are the result of sequential constrained utility maximization. Using indirect inference, we find a set of coefficients that can capture the UK policy stances for 1993-2016. This suggests post-crisis regulation has been overly intrusive. Finally, we show that this regulatory dilemma can be avoided by committing to a highly stabilizing monetary regime that uses QE extensively.
Subjects: 
Bank regulation
Financial stability
Monetary policy
Public choice theory
JEL: 
E52
E58
G28
Document Type: 
Working Paper

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