Central Banking for Financial Stability in Asia
Abstractï»¿A key lesson of the 2007â€“2009 global financial crisis (GFC) was the importance of containing systemic financial risk and the need for a â€œmacroprudentialâ€ approach to surveillance and regulation that can identify system-wide risks and take appropriate actions to maintain financial stability. By virtue of their 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 â€œsudden stopsâ€ or reversals of capital inflows. This paper reviews the recent literature on this topic and identifies relevant lessons for central banks, especially those in Asiaâ€™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 paper considers issues involved with regional financial regulatory cooperation. Overall, the report concludes that the â€œlean versus cleanâ€ 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 InfoPaper provided by East Asian Bureau of Economic Research in its series Governance Working Papers with number 23328.
Date of creation: Aug 2012
Date of revision:
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Asia; Central Banking; Financial Stability; GFC lessons; systemic financial risk; emerging economies; macroprudential; financial system; financial regulatory cooperation; central banks;
Other versions of this item:
- Masahiro Kawai & Peter J. Morgan, 2012. "Central Banking for Financial Stability in Asia," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, Policy Research Institute, Ministry of Finance Japan, vol. 8(3), pages 215-246, August.
- 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," Macroeconomics 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.
- Kawai, Masahiro & Morgan, Peter J., 2012. "Central Banking for Financial Stability in Asia," ADBI Working Papers 377, Asian Development Bank Institute.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-09-16 (All new papers)
- NEP-CWA-2012-09-16 (Central & Western Asia)
- NEP-MAC-2012-09-16 (Macroeconomics)
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