Should Monetary Policy Be Used to Counteract Financial Imbalances?
The authors examine whether monetary policy should and could do more to lean against financial imbalances (such as those associated with asset-price bubbles or unsustainable credit expansion) as they are building up, or whether its role should be limited to cleaning up the economic consequences as the imbalances unwind. Effective supervision and regulation are the first line of defence against financial imbalances. An important question is whether they should be the only one. The authors argue that the case for monetary policy to lean against financial imbalances depends on the sources of the shock or market failure and on the nature of the other regulatory instruments available. To the extent that financial imbalances are specific to a sector or market and that a well-targeted prudential tool is available, monetary policy might play a minor role in leaning against the imbalances. However, if the imbalances in a specific market can spill over to the entire economy and/or if the prudential tool is broad based, monetary policy is more likely to have a role to play. In such a case, there may be a need to coordinate the use of the two policy instruments.
Volume (Year): 2010 (2010)
Issue (Month): Summer ()
|Contact details of provider:|| Postal: |
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
When requesting a correction, please mention this item's handle: RePEc:bca:bcarev:v:2010:y:2010:i:summer10:p:23-36. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.