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Macro-Financial Risks and Central Banks: What Changes Has the Crisis Triggered?

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  • Claudiu Tiberiu ALBULESCU

    (Politehnica University of Timisoara, Timisoara, Romania)

Abstract

The global crisis has raised important questions about the role of the central banks in promoting financial stability. One of the lessons emphasized by the crisis is that central banks will, without any doubt, be involved whenever a systemic financial crisis occurs. In this line, the present paper intends to examine and question the role of central banks in mitigating macro-financial risks, with a focus on their mandate in respect of the monetary policy issues. Our approach is based on a theoretical debate related to the attributes and behavior of central banks, illustrating thus their role in the assurance of financial stability. In the context of the present financial crisis, the legitimacy of the policies applied by central banks in order to pursue and achieve the stability of the financial systems was again questioned, especially by some partisans of the Austrian school. They blame the central banks for the onset of the worldwide crisis and try to prove that both their activity and involvement in this sphere are unnecessary. Starting from this background, our paper demonstrates that it is not opportune and appropriate to put the burden of crisis mitigation failure only on the shoulders of these institutions. Moreover, the mandate assigned to central banks has to be strengthened by increasing their responsibilities in the field of financial stability. This aim can be achieved if financial stability is approached as a monetary policy objective. In other words, we reckon that it is inappropriate to focus the theoretical debates on the legitimacy of central banks in assuring the financial stability, as they should rather concentrate on the tools central banks dispose of in order to prevent and mitigate macro-financial risks, as well as on the efficiency of these instruments in the assurance of financial stability.

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Bibliographic Info

Article provided by West University of Timisoara, Romania, Faculty of Economics and Business Administration in its journal Timisoara Journal of Economics.

Volume (Year): 4 (2011)
Issue (Month): 3(15) ()
Pages: 135-142

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Handle: RePEc:wun:journl:tje:v04:y2011:i3(15):a01

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Related research

Keywords: central banks; financial crisis; financial stability; monetary policy;

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References

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  1. Dominique Pepin, 2010. "La BCE réagit-elle au prix des actifs financiers ?," Working Papers hal-00963626, HAL.
  2. Garry J. Schinasi, 2003. "Responsibility of Central Banks for Stability in Financial Markets," IMF Working Papers 03/121, International Monetary Fund.
  3. Adam Gersl & Jaroslav Hermanek, 2007. "Financial Stability Indicators: Advantages and Disadvantages of their Use in the Assessment of Financial System Stability," Occasional Publications - Chapters in Edited Volumes, Czech National Bank, Research Department, in: CNB Financial Stability Report 2006, chapter 0, pages 69-79 Czech National Bank, Research Department.
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  5. Paul Grauwe & Thomas Mayer & Karel Lannoo, 2008. "Lessons from the Financial Crisis: New Rules for Central Banks and Credit Rating Agencies?," Intereconomics: Review of European Economic Policy, Springer, Springer, vol. 43(5), pages 256-266, September.
  6. Dirk Schoenmaker, 1992. "Institutional Separation between Supervisory and Monetary Agencies," FMG Special Papers, Financial Markets Group sp52, Financial Markets Group.
  7. Driffill, John & Rotondi, Zeno & Savona, Paolo & Zazzara, Cristiano, 2006. "Monetary policy and financial stability: What role for the futures market?," Journal of Financial Stability, Elsevier, Elsevier, vol. 2(1), pages 95-112, April.
  8. Grégory Levieuge, 2005. "Politique monétaire et prix d'actifs," Revue de l'OFCE, Presses de Sciences-Po, vol. 93(2), pages 317-355.
  9. Mark Illing & Ying Liu, 2003. "An Index of Financial Stress for Canada," Working Papers, Bank of Canada 03-14, Bank of Canada.
  10. Albulescu, Claudiu Tiberiu, 2010. "Forecasting The Romanian Financial System Stability Using A Stochastic Simulation Model," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 81-98, March.
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