Preventing Bubbles: What Role for Financial Regulation?

23 Pages Posted: 11 May 2011

See all articles by Lawrence J. White

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics

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Date Written: May 9, 2011

Abstract

In the wake of the U.S. housing bubble and collapse and the consequent financial collapse of 2007-2009 and its severe consequences for the U.S. economy, it is unsurprising that there have been calls for policy makers to prevent future asset price bubbles – through the better exercise of monetary policy and/or financial regulatory policy. This essay focuses on financial regulation and argues that such efforts would, at best, be ineffective and, at worst, could squelch productive and efficient asset pricing. Instead, policy makers should focus on better regulatory efforts – better prudential regulation – to ameliorate the consequences of asset bubble deflations on the financial sector.

Keywords: asset price bubbles, prudential regulation, capital, leverage

JEL Classification: G21, G28

Suggested Citation

White, Lawrence J., Preventing Bubbles: What Role for Financial Regulation? (May 9, 2011). Available at SSRN: https://ssrn.com/abstract=1836752 or http://dx.doi.org/10.2139/ssrn.1836752

Lawrence J. White (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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