Regulatory Cycles: Revisiting the Political Economy of Financial Crises
IMF Working Papers, January 15, 2018
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- Canonical URL
- Regulatory Cycles: Revisiting the Political Economy of Financial Crises
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Bibliographic details
- Authors: Jihad Dagher
- Published: January 15, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484337745.001
Summary
- Financial crises have traditionally been analyzed as purely economic phenomena; the political economy dimension is under-emphasized and typically limited to isolated episodes.
- The paper examines the political economy of financial policy during ten of the most infamous financial booms and busts since the 18th century.
- Presents consistent evidence of pro-cyclical regulatory policies by governments: political regulatory stimuli, credit subsidies, and an increasing light-touch approach to financial supervision amplified financial booms and risk-taking.
- Regulatory backlash after crises must be understood in the context of deep political ramifications; post-crisis regulations do not always survive subsequent booms.
- History suggests politics can be the undoing of macro-prudential regulations.
Major findings and evidence
- Examines ten major financial booms and busts since the 18th century (episodes enumerated in the paper).
- Consistent pattern:
- Financial booms associated with political regulatory stimuli.
- Credit subsidies and lighter regulatory supervision coincide with elevated risk-taking.
- Post-crisis regulatory backlash emerges but is politically fragile and often eroded during following booms.
- The interplay of politics and financial policy over cycles is a central causal channel driving the observed regulatory cycles.
Policy implications and recommendations
- Recognize political drivers of regulatory cycles when designing macro-prudential frameworks.
- Strengthen institutional resilience of post-crisis regulations to withstand political pressures during subsequent booms.
- Account for political economy dynamics (incumbent government incentives, ruling party considerations, government sponsorship) in regulatory design and enforcement.
- Further research and attention are warranted on the political determinants of financial regulation durability.
Key statistics and metadata preserved from the source
- Pages: 89
- Volume: 2018
- Issue: 008
- Series: Working Paper No. 2018/008
- DOI: https://doi.org/10.5089/9781484337745.001
- Stock No: WPIEA2018008
- ISBN: 9781484337745
- ISSN: 1018-5941
- Subject keywords: Banking, Banking crises, Financial crises, Financial regulation and supervision, Global financial crisis of 2008-2009, Housing, National accounts, Stock markets
- Additional keywords: Banking crises, banking sector, Boom-Bust Cycles, bubble company, central bank, crony capitalism, financial bubble, Financial Crises, financial market, Financial Regulation, Glass-Steagall Act, Global, Global financial crisis of 2008-2009, government sponsorship, Housing, incumbent governments policy, joint stock, joint-stock bank, plain vanilla, political economy, ruling party, share price, South America, stock index, WP
Jihad Dagher. "Regulatory Cycles: Revisiting the Political Economy of Financial Crises", IMF Working Papers 2018, 008 (2018), accessed 9/18/2026, https://doi.org/10.5089/9781484337745.001