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Can Tight and Centralized Financial Regulation Prevent Financial Crises? Czech Government Bond Seignorage in the Historical Perspective

MENDELU Working Papers in Business and Economics No. 14/2011

18 Pages Posted: 30 Oct 2010 Last revised: 15 Dec 2012

Tomáš Otáhal

Mendel University - Faculty of Economics and Business Administration

Václav Rybáček

Czech Statistical Office

Date Written: October 28, 2009

Abstract

Can tight and centralized financial regulation prevent financial crises? Governments usually respond to financial crises with tightening and centralizing financial regulation. 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 regulation might increase the risk of inflationary monetary policy. To illustrate our findings on an empirical example, we calculated the Czech governmental bond seignorage that represents rent extracted through inflationary monetary policy.

Keywords: Federal Reserve System, financial crises, financial regulation, interest groups, rent-seeking, US monetary history

JEL Classification: G01, G18, G28, N11, N41

Suggested Citation

Otáhal, Tomáš and Rybáček, Václav, Can Tight and Centralized Financial Regulation Prevent Financial Crises? Czech Government Bond Seignorage in the Historical Perspective (October 28, 2009). MENDELU Working Papers in Business and Economics No. 14/2011. Available at SSRN: https://ssrn.com/abstract=1700136 or http://dx.doi.org/10.2139/ssrn.1700136

Tomáš Otáhal (Contact Author)

Mendel University - Faculty of Economics and Business Administration ( email )

Staňkova 578/16b
Brno, 602 00
Czech Republic

Václav Rybáček

Czech Statistical Office ( email )

Na padesatem 81
Praha, 10000
Czech Republic

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