Monetary policy and macro-prudential regulation: The risk-sharing paradigm

Research output: Contribution to journalArticlepeer-review


How should monetary policy and macro-prudential regulation respond to the dangers of financial bubbles? I argue that bubbles - and their collapse - become a serious problem when there is inadequate risk-sharing. Neither monetary policy nor traditional macro-prudential regulation is designed to deal with this risk-sharing problem. Monetary policy has little hope of either accurately anticipating bubbles or dealing effectively with their consequences. Traditional approaches to macro-prudential regulation are unlikely to succeed as they are based on the false premise that risk can always be quantified up front. I propose considering "ex-ante flexible contracting" as a longer-term response to the financial stability question.

Original languageEnglish (US)
Pages (from-to)54-66
Number of pages13
JournalEconomia Chilena
Issue number2
StatePublished - Aug 2013

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics


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