Discussion of 'An Integrated Framework for Multiple Financial Regulations'

11 Pages Posted: 9 Dec 2012

Date Written: November 1, 2012

Abstract

A 2012 paper by Goodhart, Kashyap, Tsomocos, and Vardoulakis (GKTV) proposes a dynamic general equilibrium framework that provides a conceptual — and to some extent quantitative — framework for the analysis of macroprudential policies. The distinguishing feature of GKTV’s paper relative to any other on macroprudential policy is its study of a setting with multiple financial frictions that permits the analysis of multiple macroprudential policy tools at the same time. The modeling approach includes various market failures such as incomplete markets with heterogeneous agents, fire-sale externalities, and margin spirals, all of which provide rationales for policies designed to improve welfare. In GKTV’s model, liquidity ratios are found to be more efficient preemptive tools than capital ratios or loan-to-value ratios. However, these liquidity ratios need to be relaxed in times of crises in order to reduce adverse effects from fire-sale externalities. It remains to be seen how robust these findings are in alternative, fully dynamic settings. Furthermore, GKTV’s approach does not address the tension between micro- and macro-prudential objectives, and the timing of the buildup and release of policies is not specified precisely.

Keywords: macroprudential policy, microprudential policy, procyclicality

JEL Classification: G18, G21, G28

Suggested Citation

Adrian, Tobias, Discussion of 'An Integrated Framework for Multiple Financial Regulations' (November 1, 2012). FRB of New York Staff Report No. 583, Available at SSRN: https://ssrn.com/abstract=2186635 or http://dx.doi.org/10.2139/ssrn.2186635

Tobias Adrian (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.tobiasadrian.com

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
69
Abstract Views
1,055
Rank
598,765
PlumX Metrics