Abstract

http://ssrn.com/abstract=1545398
 
 

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New Advantages of Tying One’s Hands: Financial Supervision, Monetary Policy and Central Bank Independence


Lucia Dalla Pellegrina


University of Milano, Bicocca - Department of Econmics Statistics (DEMS); Paolo Baffi Center - Bocconi University

Donato Masciandaro


Bocconi University - Department of Economics

Rosaria Vega Pansini


Bocconi University - BAFFI Center on International Markets, Money, and Regulation; Bocconi University - Department of Economics

January 31, 2010

Finlawmetrics 2010 Conference Paper

Abstract:     
We investigate the reasons that induce policymakers to assign banking supervision to central banks rather than involving authorities outside the banking sector. On the one hand, empirical results provide evidence that policymakers prefer that, conditional on several known features affecting supervisory task assignment, the latter are better to be given to central banks. On the other hand, higher central bank operational freedom (economic independence) is associated with a reduced degree of supervisory powers. This outcome is explained by a trade-off between central bank’s higher capability of achieving better information on the status of the banking sector and the possibility of making an instrumental use of monetary policy as a means to hide supervisory misconduct. We find that a feature mitigating this trade-off is the presence of some specific goals in the central bank’ statute aimed at increasing its political independence. We explore which statutory goals are better suited to solve such conflict.

Number of Pages in PDF File: 30

Keywords: Banking Supervision, Central Bank Independence, Monetary Policy

JEL Classification: E58, G18, G28

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Date posted: January 31, 2010  

Suggested Citation

dalla Pellegrina, Lucia and Masciandaro, Donato and Pansini, Rosaria Vega, New Advantages of Tying One’s Hands: Financial Supervision, Monetary Policy and Central Bank Independence (January 31, 2010). Finlawmetrics 2010 Conference Paper. Available at SSRN: http://ssrn.com/abstract=1545398 or http://dx.doi.org/10.2139/ssrn.1545398

Contact Information

Lucia Dalla Pellegrina (Contact Author)
University of Milano, Bicocca - Department of Econmics Statistics (DEMS) ( email )
Piazza dell'Ateneo Nuovo 1
Milano, Milan 20126
Italy
HOME PAGE: http://www.statistica.unimib.it/utenti/dallapellegrina/
Paolo Baffi Center - Bocconi University ( email )
Via Roentgen 1
Milano, MI 20136
Italy
Donato Masciandaro
Bocconi University - Department of Economics ( email )
Via Gobbi 5
Milan, 20136
Italy
Rosaria Vega Pansini
Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )
Milano, 20136
Italy
+39-02-58365194 (Phone)
Bocconi University - Department of Economics ( email )
Via Roentgen 1
Milan, 20136
Italy
+39-02-58365194 (Phone)
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