Evolution or Revolution?: Rethinking Macroeconomic Policy After the Great Recession by Olivier Blanchard & Lawrence H. Summers

Author:Olivier Blanchard & Lawrence H. Summers [Blanchard, Olivier & Summers, Lawrence H.]
Language: eng
Format: epub
Tags: Business & Economics, economics, macroeconomic policy; stabilization policy; macroeconomic stabilization; monetary policy; fiscal policy; financial policy; economic inequality; political economy; international economy; international economics; Ben Bernanke; Lael Brainard; Philipp Hildebrand; Adam Posen; Alan Auerbach; Robert Rubin; Marco Buti; Valerie Ramey; Jay Shambaugh; David Aikman; Andrew Haldane; Marc Hinterschweiger; Sujit Kapadia; Markus Brunnermeier; Benoît Cœuré; Nellie Liang; Jeremy Stein; Jason Furman; Dani Rodrik; Tharman Shanmugaratnam; Gita Gopinath; Raghuram Rajan; Pierre-Olivier Gourinchas; Barry Eichengreen; Carmen Reinhart, Macroeconomics
ISBN: 9780262039369
Google: Vo2RDwAAQBAJ
Publisher: MIT Press
Published: 2019-04-16T00:26:19.411551+00:00

III

Financial Policy

11

Rethinking Financial Stability

David Aikman, Andrew G. Haldane, Marc Hinterschweiger, and Sujit Kapadia

The thematic title of the 2017 conference was “Rethinking Macroeconomic Policy.” When it comes to financial stability, that theme could hardly be more appropriate. The global financial crisis has prompted a complete rethinking of financial stability and policies for achieving it. Over the course of the better part of a decade, a deep and wide-ranging international regulatory reform effort has been under way, as great as any since the Great Depression: wide, reflecting the multifaceted nature of the problems, market failures, and market frictions exposed within the financial system during the crisis; deep, reflecting the severity of the hit to balance sheets, risk appetite, and economic activity that the crisis has inflicted and continues to inflict.

In this chapter, we take stock of what we have learned in the years since the global financial crisis about the challenges of maintaining financial stability. The chapter is structured as follows. The next section reviews the various regulatory reforms put in place and assesses their impact through the lens of bank balance sheets and market metrics of banking risk. The following sections draw on new research and evidence to discuss, first, the calibration of regulatory standards, balancing the costs and benefits of tighter regulation, and second, the overall system of financial regulation, balancing underlaps and overlaps, simplicity and complexity, discretion and rules, and incentives to avoid regulation.

The financial system is dynamic and adaptive. So any financial regulatory regime will itself need to be adaptive if it is to contain risk within this system. In the terms used by Greenwood and co-authors (2017), resilience needs to be “dynamic.” As past evidence has shown, too rigid a regulatory system will soon become otiose. And there are already calls, in some quarters and in some countries, for a rethinking and rewriting of regulatory rules on which the ink is barely dry.1 This poses both opportunities and threats. With that in mind, we conclude the chapter with some thoughts on issues that might be fruitful for future research on regulatory policy.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.