A Macroprudential Perspective in Central Banking
AbstractThis 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 InfoPaper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 11-E-03.
Date of creation: Feb 2011
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Macroprudential policy; Procyclicality; Financial imbalances; Asset-price and credit bubble; Constrained discretion.;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-12 (All new papers)
- NEP-BAN-2011-03-12 (Banking)
- NEP-CBA-2011-03-12 (Central Banking)
- NEP-MAC-2011-03-12 (Macroeconomics)
- NEP-MON-2011-03-12 (Monetary Economics)
- NEP-REG-2011-03-12 (Regulation)
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