Monetary Policy in a Small Economy after Tsunami: A New Consensus on the Horizon?
AbstractThe last financial crisis significantly changed views concerning the relationship between monetary policy, asset prices and financial stability. We survey the pre-crisis opinions on the appropriate monetary policy reactions to financial market developments and delineate the new consensus which is currently emerging from the lessons taken. The new consensus is an amended model of flexible inflation targeting in which the central bank “should sometimes lean and can clean”. We try to add the small open economy context to the debate and demonstrate that the optimal reactions of monetary policy-makers in small open economies may differ and that sometimes the optimal solution may not even be available due to the policies of the key world central banks acting as price makers. In such instances, second-best policies have to be considered.
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Bibliographic InfoArticle provided by Charles University Prague, Faculty of Social Sciences in its journal Finance a uver - Czech Journal of Economics and Finance.
Volume (Year): 61 (2011)
Issue (Month): 1 (January)
monetary policy; financial stability; asset markets; macroprudential policy;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
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