Can Tight and Centralized Financial Regulations Prevent Financial Crises? Effects of Financial Regulations on Monetary Policy

Can tight and centralized financial regulations prevent financial crises? Governments usually respond to financial crises with tightening and centralizing financial regulations. In this paper, we explore the historical parallels between the governmental responses to the financial crises at the end of the 19th and the beginning of the 20th century in the USA and the recent response of the European Union. Our rent-seeking model with endogenous rent derived from the historical narrative predicts that tight and centralized financial regulations might increase the risk of inflationary monetary policy