Optimal Bank Regulation and Monetary Policy

42 Pages Posted: 16 Feb 2001

See all articles by John J. Seater

John J. Seater

Economics Dept., Boston College

Date Written: January 2001

Abstract

A unified model of monetary policy and bank regulation is presented. In accordance with modern banking theory, banks not only intermediate loans and deposits but also provide a financial service affecting aggregate output. Optimal parameter settings for monetary and regulatory policy are derived. New results are that monetary policy affects the expected level as well as the variance of output, bank regulation should change continually in response to the state of the economy, and bank regulation and monetary policy should be tightly coordinated. This last result has important implications for the institutional arrangements for conducting regulatory and monetary policy.

Keywords: joint optimality, bank regulation, monetary policy

JEL Classification: E5, G28

Suggested Citation

Seater, John J., Optimal Bank Regulation and Monetary Policy (January 2001). Available at SSRN: https://ssrn.com/abstract=260106 or http://dx.doi.org/10.2139/ssrn.260106

John J. Seater (Contact Author)

Economics Dept., Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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