Central Banking for Financial Stability in Asia
AbstractA key lesson of the 2007-2009 global financial crisis (GFC) was the importance of containing systemic financial risk and the need for a "macroprudential" approach to surveillance and regulation that can identify system-wide risks and take appropriate actions to maintain financial stability. By virtue of their broad overview of the economy and the financial system and their responsibility for payments and settlement systems, there is a broad consensus that central banks should play a key role in monitoring and regulating financial stability. Emerging economies face additional challenges because of their underdeveloped financial systems and vulnerability to volatile international capital flows, especially "sudden stops" or reversals of capital inflows. This paper reviews the recent literature on this topic and identifies relevant lessons for central banks, especially those in Asia's emerging economies. Major topics discussed include the debate about the definition of financial stability, the consistency of a financial stability objective with the more traditional and well-established central bank objective of price stability, the appropriate governance structure for coordination of macroprudential policy with other financial supervisors and entities, and the appropriate policy instruments to achieve macroprudential policy objectives, including conventional, unconventional and macroprudential tools. Finally, the report considers issues involved with regional financial regulatory cooperation. Overall, the report concludes that the "lean versus clean" debate has been resolved largely in favor of the former, and that central banks should have a financial stability mandate and the policy tools to successfully pursue that mandate.
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Bibliographic InfoArticle provided by Policy Research Institute, Ministry of Finance Japan in its journal Public Policy Review.
Volume (Year): 8 (2012)
Issue (Month): 3 (August)
Other versions of this item:
- Masahiro Kawai & Peter J. Morgan, 2012. "Central Banking for Financial Stability in Asia," Development Economics Working Papers 23328, East Asian Bureau of Economic Research.
- Masahiro Kawai & Peter J. Morgan, 2012. "Central Banking for Financial Stability in Asia," Finance Working Papers 23328, East Asian Bureau of Economic Research.
- Masahiro Kawai & Peter J. Morgan, 2012. "Central Banking for Financial Stability in Asia," Macroeconomics Working Papers 23328, East Asian Bureau of Economic Research.
- Kawai, Masahiro & Morgan, Peter J., 2012. "Central Banking for Financial Stability in Asia," ADBI Working Papers 377, Asian Development Bank Institute.
- Masahiro Kawai & Peter J. Morgan, 2012. "Central Banking for Financial Stability in Asia," Governance Working Papers 23328, East Asian Bureau of Economic Research.
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
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