scholarly journals Price stability and financial stability in the context of EUROSYSTAM’s monetary policy

2009 ◽  
Vol XII (Issue 4) ◽  
pp. 19-36
Author(s):  
Anca Bandoi ◽  
Dorel Berceanu ◽  
Dana Danciulescu
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Price Stability

scholarly journals Monetary Policy and Financial Stability

2020 ◽  
Vol 2020 (101) ◽  
pp. 1-36
Author(s):  
Isabel Cairó ◽  
◽  
Jae Sim ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Global Financial Crisis ◽  
Price Stability ◽  
Policy Regimes ◽  
Household Sector ◽  
Nominal Interest Rates ◽  
Credit Cycle

The 2008 Global Financial Crisis called into question the narrow focus on price stability of inflation targeting regimes. This paper studies the relationship between price stability and financial stability by analyzing alternative monetary policy regimes for an economy that experiences endogenous financial crises due to excessive household sector leverage. We reach four conclusions. First, a central bank can improve both price stability and financial stability by adopting an aggressive inflation targeting regime, in the absence of the zero lower bound (ZLB) constraint on nominal interest rates. Second, in the presence of the ZLB constraint, an aggressive inflation targeting regime may undermine both price stability and financial stability. Third, an aggressive price-level targeting regime can improve both price stability and financial stability, regardless of the presence of the ZLB constraint. Finally, a leaning against the wind policy can be detrimental to both price stability and financial stability when the credit cycle is driven by countercyclical household sector leverage. In this environment, leaning with credit spreads can be more effective.

Macroprudential policy – closing the financial stability gap

2017 ◽  
Vol 25 (4) ◽  
pp. 334-359 ◽  
Author(s):  
Stephan Fahr ◽  
John Fell
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Relative Effectiveness ◽  
Policy Instruments ◽  
Price Stability ◽  
Macroprudential Policy ◽  
Content Type ◽  
Macroprudential Policies ◽  
Trade Offs ◽  
System Resilience

Purpose The global financial crisis demonstrated that monetary policy alone cannot ensure both price and financial stability. According to the Tinbergen (1952) rule, there was a gap in the policymakers’ toolkit for safeguarding financial stability, as the number of available policy instruments was insufficient relative to the number of policy objectives. That gap is now being closed through the creation of new macroprudential policy instruments. Both monetary policy and macroprudential policy have the capacity to influence both price and financial stability objectives. This paper develops a framework for determining how best to assign instruments to objectives. Design/methodology/approach Using a simplified New-Keynesian model, the authors examine two sets of policy trade-offs, the first concerning the relative effectiveness of monetary and macroprudential policy instruments in achieving price and financial stability objectives and the second concerning trade-offs between macroprudential policy instruments themselves. Findings This model shows that regardless of whether the objective is to enhance financial system resilience or to moderate the financial cycle, macroprudential policies are more effective than monetary policy. Likewise, monetary policy is more effective than macroprudential policy in achieving price stability. According to the Mundell (1962) principle of effective market classification, this implies that macroprudential policy instruments should be paired with financial stability objectives, and monetary policy instruments should be paired with the price stability objective. The authors also find a trade-off between the two sets of macroprudential policy instruments, which indicates that failure to moderate the financial cycle would require greater financial system resilience. Originality/value The main contribution of the paper is to establish – with the help of a model framework – the relative effectiveness of monetary and macroprudential policies in achieving price and financial stability objectives. By so doing, it provides a rationale for macroprudential policy and it shows how macroprudential policy can unburden monetary policy in leaning against the wind of financial imbalances.

scholarly journals Have Financial Stability Concerns Changed the Priority of the Central Bank of the Republic of Turkey?

2017 ◽  
Vol 12 (2) ◽  
pp. 35-45 ◽  
Author(s):  
Ekrem Erdem ◽  
Umit Bulut ◽  
Emrah Kocak
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Stability ◽  
Nominal Exchange Rate ◽  
Policy Framework ◽  
Price Stability ◽  
Cointegration Tests ◽  
The Republic ◽  
Republic Of Turkey ◽  
Monetary Policy Framework

Abstract This paper aims at analysing whether the Central Bank of the Republic of Turkey (CBRT), designing a new monetary policy framework to achieve financial stability in the last quarter of 2010, tries to pursue financial stability by putting price stability on the back burner. To this end, a forward-looking reaction function that is extended with nominal exchange rate gap and nominal domestic credits gap is estimated for the CBRT. The paper first performs unit root and cointegration tests and finds that the variables become stationary at first differences and that there is a cointegration relationship among variables. Then, the paper conducts the Kalman filter to obtain time varying parameters. The findings show that the coefficients of all explanatory variables did not change too much after the new monetary policy framework of the CBRT in the last quarter of 2010. Therefore, this paper asserts that the CBRT continues to pursue price stability as its primary goal and tries to achieve financial stability by using macroprudential tools. Thus this paper concludes that financial stability concerns have not changed the priority of the CBRT.

scholarly journals Monetary Policy and Financial Stability

Policy Papers ◽  
2015 ◽  
Vol 2015 (45) ◽  
Author(s):  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Financial Crises ◽  
Financial Stability ◽  
Price Stability ◽  
Financial Risks ◽  
Macroprudential Regulation ◽  
Output Stability ◽  
Regulation And Supervision

The issue of using monetary policy for financial stability purposes is hotly contested. The crisis was a reminder that price stability is not sufficient for financial stability, financial crises are costly, and policy should aim to decrease the likelihood of crises, not only rely on dealing with their repercussions once they occur. It is clear that well-targeted prudential policies (including micro and macroprudential regulation and supervision) should be pursued actively to attenuate the buildup of financial risks. The question is whether monetary policy should be altered to contain financial stability risks. Should it lend a hand by temporarily raising interest rates more than warranted by price and output stability objectives? Keeping rates persistently higher is also possible, but more costly.

A macro‐prudential perspective of financial regulation

2011 ◽  
Vol 19 (3) ◽  
pp. 289-297 ◽  
Author(s):  
Tristan Nguyen
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Financial Markets ◽  
Financial Stability ◽  
Housing Prices ◽  
Price Stability ◽  
Trade Off ◽  
Content Type ◽  
Animal Spirit

PurposeIn the recent financial crisis, many observers have assigned monetary policy a central role in the crisis. Specifically, they claim that excessively easy monetary policy by the Federal Reserve in the first half of the decade helped to cause a bubble in housing prices in the USA. The purpose of this paper is to analyze the role of monetary policy within the regulatory frameworks of financial markets.Design/methodology/approachThe authors show within a macroeconomic framework a possible trade‐off between price stability and financial stability by differentiating between a technology‐driven bubble and an animal spirit bubble. In their conclusion: if there is a trade‐off between price stability and financial stability, the central bank will have to make a choice between the two objectives. In that case, the question arises of which of the two objectives should take precedence: price stability or financial stability?FindingsFrom this analysis, the authors conclude that a central bank which uses a lexicographic ordering favoring price stability over other objectives is likely to fuel the boom inadvertently (in the case of a technology‐driven bubble) or will decide to do nothing (in the case of an animal spirit bubble) allowing a process of excessive credit creation. The latter seems to be what happened between 2003 and 2008.Practical implicationsIf one wants to reduce the likelihood of future major financial busts, it must be accepted that the central banks (especially the Fed and the ECB) cannot only be responsible for price stability. Maintaining financial stability by preventing excesses in financial markets should be an equally important objective.Originality/valueThe paper gives a new perspective on the role of monetary policy within the regulatory framework. With this macroeconomic framework, the authors are able to show possible trade‐offs between price stability and financial stability. The micro‐ and macro‐prudential approach of this paper is a useful contribution to the discussion about regulatory reforms of financial markets.

scholarly journals Consideration on the price stability – financial stability relationship in the context of financial globalization

2010 ◽  
Author(s):  
Marius Apostoaie
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Central Banks ◽  
Point Of View ◽  
Price Stability ◽  
Theoretical Point ◽  
Ongoing Debate ◽  
Key Concepts ◽  
In The Beginning ◽  
Stability Issues

This study is focused upon the involvement of the central banks regarding the fulfillment of the two main objectives: price  stability and financial stability. These two key concepts are part of an old and ongoing debate that the current turmoil has revived, and that is whether monetary policy should aim, or not, at ensuring financial stability in parallel to its main objective of price stability. On both sides there are solid and well known arguments. In the beginning of the study I have  considered a literature review with regard to price and financial stability issues. After that I have tried to shed some light (from a theoretical point of view) on the nature and dynamics of the fundamental interlinkages between the two aspects and there implications on the central banks and the economy. Finally I outline some general conclusions that have emerged in the present study.

The Interaction of Monetary and Macroprudential Policies - Background Paper

Policy Papers ◽  
2012 ◽  
Vol 2012 (106) ◽  
Author(s):  
Keyword(s):  
Monetary Policy ◽  
Side Effects ◽  
Financial Stability ◽  
Interactive Effects ◽  
Price Stability ◽  
Macroprudential Policy ◽  
Macroprudential Policies ◽  
Background Material

This paper provides background material to support the Board paper on the interaction of monetary and macroprudential policies. It analyzes the scope for and evidence on interactions between monetary and macroprudential policies. It first reviews a recent conceptual literature on interactive effects that arise when both macroprudential and monetary policy are employed. It goes on to explore the “side effects” of monetary policy on financial stability and their implications for macroprudential policy. It finally addresses the strength of possible effects of macroprudential policies on output and price stability, and draws out implications for the conduct of monetary policy.

The Contribution of Macro Prudential Policies to Country Economies in the Financial Stability Process

2021 ◽  
Author(s):  
Yağmur Rençber
Keyword(s):  
Monetary Policy ◽  
Financial Services ◽  
Financial Stability ◽  
Global Financial Crisis ◽  
Primary Objective ◽  
Sustainable Growth ◽  
Price Stability ◽  
Annual Data ◽  
Real Economy ◽  
The Global Financial Crisis

After the global financial crisis, in addition to providing price stability, which was the primary objective of the Central Banks, the goal of maintaining financial stability has taken its place among the basic monetary policies all over the world. Because, with the effect of globalization, the aim of monetary policy to provide price stability alone is not enough to ensure sustainable growth and welfare. In this sense, macro prudential policies have been developed within the framework of Basel III, the basis of which is formed by BIS. These macro prudential policies are basically defined as precautionary policy tools that limit the disruption of financial services that create serious problems in the real economy by preventing all financial risks, whether systematic or unsystematic. The definition and scope of macro prudential policies will be discussed in the first part of the article. In the second part of the study, annual data will be presented within the framework of BIS on the scope and development of macro prudential policies implemented worldwide between 2000-2020. On the other hand, it is aimed to present a detailed analysis on the macro-prudential policies implemented in Turkey, which will include Central Bank data based on its development over the years. In the last section, it is aimed to provide macro-prudential policies accompanied by data, as well as its high role in determining systemic risks, and to present optimum policy recommendations that include monetary policy, fiscal policy, micro-prudential policies, competition policy and, when applied together, support the aim of financial stability.

scholarly journals Analysis of monetary regulation of the investment sphere in the Republic of Belarus

2021 ◽  
Vol 107 ◽  
pp. 09001
Author(s):  
Marina Zelenkevich ◽  
Natallia Bandarenka
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Open Economy ◽  
Financial Stability ◽  
Developing Economies ◽  
Small Open Economy ◽  
Price Stability ◽  
Practical Implementation ◽  
The Republic ◽  
The Impact

The purpose of the article is to substantiate the possibility and necessity of the central bank’s monetary policy to stimulate investment and economic growth for developing economies on the example of the investment sphere and monetary policy in Belarus. It was determined that the impact of monetary regulation on investment and economic growth is achieved in the course of the central bank’s activities to maintain indicators of price and financial stability which reflect favourable conditions for investment. Price stability is achieved through the implementation of various central bank strategies such as targeting the exchange rate, money supply and inflation. These strategies are defined as the objectives of monetary policy. The article discusses the advantages of monetary regulation in comparison with fiscal regulation, and also contains an analysis of its practical implementation in the Republic of Belarus in the period 2000–2019. As a result of the study the economic and financial results of the strategies applied at different stages were determined, their consequences for the economy were substantiated, and the strategies that best affect the financial and economic indicators in the country were identified. For countries with a small open economy which includes Belarus maintaining price and financial stability is complemented by a set of measures to reduce the devaluation expectations of market entities and create a favorable foreign economic environment.

scholarly journals Monetary Policy and Financial Stability: A CEMAC Zone Case Study

2016 ◽  
Vol 8 (7) ◽  
pp. 244
Author(s):  
Antoine Ngakosso
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Price Stability ◽  
Policy Mix

This article scrutinizes the relation between the monetary policy and the financial stability driving data from CEMAC zone countries. Furthermore, it aims to know if in addition to its mandate about price stability, the BEAC bank integrates the financial stability in its monetary policy. My method is based on the Taylor Increased Rule estimation of the financial price assets and the econometric test. The results show that the separated policy-mix better fits for CEMAC zone countries. Furthermore, it comes out that the adapted monetary policy practiced by BEAC bank currently ensures the price stability.

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