Can Tight and Centralized Financial Regulations Prevent Financial Crises? Effects of Financial Regulations on Monetary Policy
Eurozone and Its Neighbors: The Third Year of Crisis, Bučovice: Martin Stříž Publishing, 2012
13 Pages Posted: 15 Nov 2012 Last revised: 12 Dec 2012
Date Written: November 14, 2012
Can tight and centralized financial regulations prevent financial crises? Governments usually respond to financial crises with tightening and centralizing financial regulations. In this paper, we explore the historical parallels between the governmental responses to the financial crises at the end of the 19th and the beginning of the 20th century in the USA and the recent response of the European Union. Our rent-seeking model with endogenous rent derived from the historical narrative predicts that tight and centralized financial regulations might increase the risk of inflationary monetary policy.
Keywords: Federal Reserve System, financial crises, financial regulation, interest groups, rent-seeking, US monetary history
JEL Classification: G01, G18, G28, N11, N21, N41
Suggested Citation: Suggested Citation