How to order
IMF Publications

Working Papers in full text
2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 All

Other research-related activities and publications of the IMF can be found at IMF Research

Free Email Notification

Receive emails when we post new items of interest to you.

Subscribe or Modify your profile

Central Bank Independence and Macro-Prudential Regulation

Author/Editor: Fabian Valencia | Kenichi Ueda
Authorized for Distribution: April 1, 2012
Electronic Access: Free Full Text (PDF file size is 1,066KB)
Use the free Adobe Acrobat Reader to view this PDF file.
Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: We consider the optimality of various institutional arrangements for agencies that conduct macro-prudential regulation and monetary policy. When a central bank is in charge of price and financial stability, a new time inconsistency problem may arise. Ex-ante, the central bank chooses the socially optimal level of inflation. Ex-post, however, the central bank chooses inflation above the social optimum to reduce the real value of private debt. This inefficient outcome arises when macro-prudential policies cannot be adjusted as frequently as monetary. Importantly, this result arises even when the central bank is politically independent. We then consider the role of political pressures in the spirit of Barro and Gordon (1983). We show that if either the macro-prudential regulator or the central bank (or both) are not politically independent, separation of price and financial stability objectives does not deliver the social optimum.
Order a print copy
Series: Working Paper No. 12/101
Subject(s): Central bank autonomy | Economic models
Author's keyword(s): Monetary Policy | Macro-prudential Regulation | Central Bank Independence | Time-inconsistency
    Published:   April 1, 2012        
    ISBN/ISSN:   9781475502916/1018-5941   Format:   Paper
    Stock No:   WPIEA2012101   Pages:   27
    Price:   US$18.00
Please address any questions about this title to