Financial Deregulation, Monetary Policy, and Central Banking
20 Pages Posted: 31 Oct 2012
Date Written: 1988
Financial deregulation is widely understood to have important economic benefits for microeconomic reasons. Since Adam Smith, economists have provided arguments and evidence that unfettered private markets yield outcomes that are superior to public sector alternatives. But financial regulations-specific rules and overall structures-are sometimes justified on macroeconomic grounds. This paper analyzes the need for financial regulations in the implementation of central bank policy. Dividing the actions of the Federal Reserve into monetary and banking policy, we find that financial regulations cannot readily be rationalized on the basis of macroeconomic benefits.
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