Recently, it has often been argued that globalization eases the job of central banks as it helps to tame inflation. This is used to argue that central banks (particularly the ECB, referring to the objectives as laid down in the EU-Treaty) could or should reduce their efforts in the fight against...

Correlation between the risks of portfolios of different commercial banks leads to too much risk taking from a social planner's perspective. The presence of a regulator improves this risk-benefit allocation of the financial system. In this paper I show that first-best regulation also leads to...