de la Torre, AugustoIze, Alain2013-10-022013-10-022013-08https://hdl.handle.net/10986/16009This paper explores post-Lehman macroprudential regulation by interacting two types of market failures (principal-agent and collective action) with two cognition modes (unconstrained and constrained) in the context of aggregate risk. Four paradigms with orthogonal policy justifications are identified. In the first time consistency paradigm, regulation offsets the moral hazard implications of efficient but time inconsistent post-crisis bailouts. In the second dynamic alignment paradigm, it protects unsophisticated market participants by maintaining principal-agent incentives continuously aligned in the face of aggregate shocks. In the third collective action paradigm, regulation arises in response to the socially inefficient yet rational financial instability resulting from uninternalized externalities. The fourth collective cognition paradigm is grounded on the need to temper the mood swings that arise from bounded rationality or severe cognitive frictions in a rapidly changing, complex and uncertain world. These four rationales give rise to important tensions and trade-offs in the design of macroprudential policy.en-USCC BY 3.0 IGOACCELERATORADVANCED ECONOMIESADVERSE EFFECTSADVERSE IMPACTADVERSE SELECTIONAGENCY COSTSARBITRAGEASSET PRICEASSET PRICESBAILOUTSBANK CREDITBANK FAILURESBANK OF ENGLANDBANK PANICSBANK REGULATIONBANKING CRISESBANKING CRISISBANKING PANICSBORROWINGBOUNDED RATIONALITYBUSINESS CYCLEBUSINESS CYCLESCAPITAL REGULATIONCAPITAL REQUIREMENTSCENTRAL BANKSCOLLATERALCOLLECTIVE ACTIONCOLLECTIVE ACTION PROBLEMSCOMMERCIAL BANKINGCOMPARATIVE ADVANTAGECOMPARATIVE ADVANTAGESCOMPENSATION SYSTEMSCONSUMER PROTECTIONCOORDINATION FAILURESCREDIT EXPANSIONCREDIT POLICIESCREDITORSDEBTDEPOSITDEPOSIT INSURANCEDEPOSITORSDEVELOPMENT BANKDEVELOPMENT POLICYDISCLOSURE REQUIREMENTSDRIVERSECONOMETRICSECONOMIC PERFORMANCEECONOMIC RESEARCHECONOMIC SURVEYSECONOMIC THEORYECONOMICSEXCESS LIQUIDITYEXPECTED UTILITYEXPOSUREEXTERNALITIESEXTERNALITYFAILURE RESOLUTIONFEDERAL RESERVEFEDERAL RESERVE BANKFINANCIAL AUTHORITIESFINANCIAL CONTAGIONFINANCIAL CONTRACTSFINANCIAL CRISESFINANCIAL CRISISFINANCIAL DEVELOPMENTFINANCIAL FRAGILITYFINANCIAL INNOVATIONFINANCIAL INSTABILITYFINANCIAL INSTITUTIONFINANCIAL INSTITUTIONSFINANCIAL INTERMEDIARIESFINANCIAL MARKETFINANCIAL MARKET PARTICIPANTSFINANCIAL MARKETSFINANCIAL REGULATIONFINANCIAL SAFETY NETFINANCIAL SECTORFINANCIAL STABILITYFINANCIAL STRUCTUREFINANCIAL STUDIESFINANCIAL SYSTEMFINANCIAL SYSTEMSFINANCIAL VOLATILITYGENERAL EQUILIBRIUMGENERAL EQUILIBRIUM ANALYSISHOLDINGINDIVIDUAL MARKETINFORMATION ASYMMETRIESINFORMATION ASYMMETRYINFORMATION PROCESSINGINFORMATION TECHNOLOGYINNOVATIONINTEREST RATESINTERNATIONAL BANKINTERNATIONAL FINANCEINVESTMENT CHOICESINVESTMENT DECISIONSIRRATIONAL EXUBERANCELENDERLENDER OF LAST RESORTLIQUID ASSETSLIQUIDITYLIQUIDITY PROBLEMSLIQUIDITY RISKLOANMACROECONOMIC CONTEXTMACROECONOMIC POLICYMACROECONOMICSMARK-TO-MARKETMARK-TO-MARKET ACCOUNTINGMARKET DISCIPLINEMARKET FAILUREMARKET FAILURESMARKET LIQUIDITYMARKET PARTICIPANTMARKET PARTICIPANTSMARKET PLAYERSMARKET PRICESMARKET PRICINGMARKET REQUIREMENTSMATURITYMATURITY MISMATCHMONETARY POLICYMORAL HAZARDNEGATIVE EXTERNALITIESPAYMENT SYSTEMPAYMENT SYSTEMSPECUNIARY EXTERNALITIESPOLICY RESPONSEPOLICY RESPONSESPOLITICAL ECONOMYPORTFOLIOPRIVATE CAPITALPRUDENTIAL REGULATIONPRUDENTIAL REQUIREMENTSPUBLIC DEBTPUBLIC GOODPUBLIC INVESTMENTPUT OPTIONRATING AGENCIESREGULATORREGULATORSREGULATORY FRAMEWORKREGULATORY REQUIREMENTSRESERVERESERVE REQUIREMENTSRETURNRETURNSRISK MANAGEMENTRISK TAKINGSAFETYSAFETY NETSHAREHOLDERSSIDE EFFECTSSOCIAL BENEFITSSOCIAL COSTSSOLVENCYSYSTEMIC RISKSYSTEMIC RISKSTAXTAXATIONTRADINGUTILITY MAXIMIZATIONUTILITY THEORYVOLATILITYWEALTHWHOLESALE FUNDINGWorld Bank10.1596/1813-9450-6576