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A Macroprudential Perspective in Central Banking

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  • Shigenori Shiratsuka

    (Institute for Monetary and Economic Studies, Bank of Japan (E-mail: shigenori.shiratsuka@boj.or.jp))

Abstract

This paper explores a policy framework for central banks from a macroprudential perspective, to pursue price and financial system stability in a consistent and sustainable manner. Triggered by the recent financial crisis, fundamental reform of the financial system is advocated to establish more stable foundations for supporting sustainable growth in the global economy. Achieving higher stability purely by more stringent microprudential regulations tends to result in lower efficiency in financial intermediation. Crises are fundamentally endogenous to the financial system and arise from exposure to common risks among financial institutions, underpinned by complicated incentives at both the micro and macro levels. In that context, macroprudential policy is often pointed out as a missing element in the current policy framework in order to strike a balance between the efficiency and stability of the financial system as a whole. Pursuing both price and financial system stability in a consistent and sustainable manner requires combination of monetary and prudential policies, especially macroprudential policy. To that end, this paper proposes to extend constrained discretion for monetary policy, proposed as the conceptual basis for flexible inflation targeting, to overall central banking, encompassing monetary and macroprudential policies.

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Bibliographic Info

Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 11-E-03.

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Date of creation: Feb 2011
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Handle: RePEc:ime:imedps:11-e-03

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Keywords: Macroprudential policy; Procyclicality; Financial imbalances; Asset-price and credit bubble; Constrained discretion.;

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  1. Shiratsuka, Shigenori, 2001. "Is There a Desirable Rate of Inflation? A Theoretical and Empirical Survey," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(2), pages 49-83, May.
  2. Zoltan Pozsar & Tobias Adrian & Adam Ashcraft & Hayley Boesky, 2010. "Shadow banking," Staff Reports, Federal Reserve Bank of New York 458, Federal Reserve Bank of New York.
  3. Goodhart, Charles & Schoenmaker, Dirk, 1995. "Should the Functions of Monetary Policy and Banking Supervision Be Separated?," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 539-60, October.
  4. Alan Greenspan, 1994. "Opening remarks," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, issue Jan, pages 1-3.
  5. Shin, Hyun Song & Adrian, Tobias, 2008. "Financial intermediaries, financial stability and monetary policy," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 287-334.
  6. Gabriele Galati & Richhild Moessner, 2010. "Macroprudential policy - a literature review," DNB Working Papers, Netherlands Central Bank, Research Department 267, Netherlands Central Bank, Research Department.
  7. Masazumi Hattori & Hyun Song Shin & Wataru Takahashi, 2009. "A Financial System Perspective on Japan's Experience in the Late 1980s," IMES Discussion Paper Series, Institute for Monetary and Economic Studies, Bank of Japan 09-E-19, Institute for Monetary and Economic Studies, Bank of Japan.
  8. Okina, Kunio & Shirakawa, Masaaki & Shiratsuka, Shigenori, 2001. "The Asset Price Bubble and Monetary Policy: Japan's Experience in the Late 1980s and the Lessons: Background Paper," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, Institute for Monetary and Economic Studies, Bank of Japan, vol. 19(S1), pages 395-450, February.
  9. Mathias Drehmann & Claudio Borio & Leonardo Gambacorta & Gabriel Jiminez & Carlos Trucharte, 2010. "Countercyclical capital buffers: exploring options," BIS Working Papers 317, Bank for International Settlements.
  10. Frederic S. Mishkin & Adam S. Posen, 1997. "Inflation targeting: lessons from four countries," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Aug, pages 9-110.
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