Regulatory Cycles: Revisiting the Political Economy of Financial Crises

Author/Editor:

Jihad Dagher

Publication Date:

January 15, 2018

Electronic Access:

Free Full Text (PDF file size is 900 KB).Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

Financial crises are traditionally analyzed as purely economic phenomena. The political economy of financial booms and busts remains both under-emphasized and limited to isolated episodes. This paper examines the political economy of financial policy during ten of the most infamous financial booms and busts since the 18th century, and presents consistent evidence of pro-cyclical regulatory policies by governments. Financial booms, and risk-taking during these episodes, were often amplified by political regulatory stimuli, credit subsidies, and an increasing light-touch approach to financial supervision. The regulatory backlash that ensues from financial crises can only be understood in the context of the deep political ramifications of these crises. Post-crisis regulations do not always survive the following boom. The interplay between politics and financial policy over these cycles deserves further attention. History suggests that politics can be the undoing of macro-prudential regulations.

Series:

Working Paper No. 18/8

English

Publication Date:

January 15, 2018

ISBN/ISSN:

9781484337745/1018-5941

Stock No:

WPIEA2018008

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

90

Please address any questions about this title to publications@imf.org