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Jan Libich

Jan Libich

has completed his PhD at the University of New South Wales in Sydney. His research focuses on monetary and fiscal policy, the financial and banking system, game theory and sports economics. Over the past decade he has published close to 30 papers in academic journals including Journal of Public Economics, European Journal of Political Economy, Macroeconomic Dynamics, Journal of Sports Economics, Journal of Economic Surveys and Economics Letters. Jan’s one-hour video interviews with esteemed central bankers, politicians and academic economists can be viewed at

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Jan Libich: Unpleasant Monetarist Arithmetic: Macroprudential Edition

The paper shows that the recent trend of separating macroprudential and monetary policies (M&Ms) into two autonomous institutions is undesirable. The main reason is occurrence of a strategic (Game of Chicken type) conflict, disregarded in conventional microfounded macro models. It relates primarily to stabilization of exuberant credit booms, whereby each M&M prefers to ignore the forming bubble - inducing the other institution to tighten conditions. This strategic conflict between M&Ms has been observed in Sweden, Norway and other countries after 2010. To offer novel insights, we postulate a generalized concept of Stochastic leadership in which the policies can probabilistically revise their earlier actions in a Calvo-style fashion. Due to greater rigidities and constraints, the macroprudential authority is likely to be the Stochastic leader and have an upper hand on the central bank. Our game-theoretic analysis demonstrates how this leads to a second type of an unpleasant monetarist arithmetic. In the original version of Sargent and Wallace (1981) the danger to price (and output) stability comes from irresponsible fiscal policy, whereas in our version it comes from inadequate macroprudential policy.

Last modified: 2019.10.29.