TY - BOOK ID - 134488798 TI - The Foundations of Macroprudential Regulation : A Conceptual Roadmap AU - De la Torre, Augusto AU - Ize, Alain PY - 2013 PB - Washington, D.C., The World Bank, DB - UniCat KW - Banks & Banking Reform KW - Bounded rationality KW - Collective action KW - Debt Markets KW - Economic Theory & Research KW - Emerging Markets KW - Externalities KW - Financial crises KW - Financial frictions KW - Financial policy KW - Labor Policies KW - Macroeconomics and Economic Growth KW - Macroprudential policy KW - Principal-agent problems KW - Pro-cyclical financial markets KW - Prudential oversight KW - Regulatory architecture UR - https://www.unicat.be/uniCat?func=search&query=sysid:134488798 AB - This paper examines the conceptual foundations of macroprudential policy by reviewing the literature on financial frictions from a policy perspective that systematically links state interventions to market failures. The method consists in gradually incorporating into the Arrow-Debreu world a variety of frictions and sources of aggregate volatility and combining them along three basic dimensions: purely idiosyncratic vs. aggregate volatility, full vs. bounded rationality, and internalized vs. uninternalized externalities. The analysis thereby obtains eight "domains," four of which include aggregate volatility, hence call for macroprudential policy variants grounded on largely orthogonal rationales. Two of them emerge even assuming that externalities are internalized: one aims at offsetting the public moral hazard implications of (efficient but time inconsistent) post-crisis policy interventions, the other at maintaining principal-agent incentives continuously aligned along the cycle. Allowing for uninternalized externalities justifies two additional types of macroprudential policy, one aimed at aligning private and social interests, the other at tempering mood swings. Choosing a proper regulatory path is complicated by the fact that the relevance of frictions is likely to be state-dependent and that different frictions motivate different (and often conflicting) policies. ER -