Good Bye Light Touch? Macroeconomic Resilience, Banking Regulation and Institutions

28 Pages Posted: 12 Nov 2011

See all articles by Lucia Dalla Pellegrina

Lucia Dalla Pellegrina

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS)

Donato Masciandaro

Bocconi University - Department of Economics

Date Written: November 1, 2011

Abstract

With the Great Crisis of 2008-2009 we have witnessed a relevant episode of macroeconomic vulnerability affecting many countries. To what extent such vulnerability has depended upon the design of light touch (LT) banking regulation? And to what extent other institutional factors, different from − as well as complementary to − banking regulation, have contributed to the Great Crisis? The present work offers two contributions: a systematic review of the existing literature on the subject; an empirical analysis conducted on a sample of 102 countries. We observe an Unpleasant Nexus (UN), i.e. that macroeconomic volatility is associated in a robust and systematic way with LT banking regulation. But the UN does not operate in a vacuum. The link between vulnerability and LT banking regulation seems representative of a more general relationship between institutional design and macroeconomic performance. Our analysis shows how various types of institutions – public, political, legal, monetary – also seem to exert an unexpected effect on resilience.

Suggested Citation

Dalla Pellegrina, Lucia and Masciandaro, Donato, Good Bye Light Touch? Macroeconomic Resilience, Banking Regulation and Institutions (November 1, 2011). Paolo Baffi Centre Research Paper No. 2011-109. Available at SSRN: https://ssrn.com/abstract=1958170 or http://dx.doi.org/10.2139/ssrn.1958170

Lucia Dalla Pellegrina

Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS) ( email )

Piazza dell'Ateneo Nuovo, 1
Milan, 20126
Italy

Donato Masciandaro (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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