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Evolving international financial markets: some implications for Central Banks

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  • William R. White

Abstract

Internationally integrated capital markets can have significant effects on the way central bankers pursue both monetary (macroeconomic) and financial stability. With respect to the former, countries are being pushed into corner solutions of either "immutably" fixed exchange rates or floating. While the proper choice depends on a country's circumstances, no regime is without its own problems. In this paper, some of the practical implications of floating are highlighted; in particular, how adoption of such a regime affects the transmission mechanism of monetary policy and the problems posed by volatile exchange rate expectations. As for the pursuit of financial stability, central bankers and other regulators must increasingly recognise the international dimension in their efforts to promote the health of financial institutions, financial markets and the infrastructure (legal, payment systems, etc.) which supports them. This international dimension affects the nature of the prudential policies adopted as well as the processes through which they are agreed. Finally, recognising that monetary stability and financial stability are two sides of the same coin (witness Mexico in 1995 and South Asia more recently), the paper concludes with some preliminary reflections on possible interactions between monetary and prudential policies in an internationally integrated world.

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  • William R. White, 1999. "Evolving international financial markets: some implications for Central Banks," BIS Working Papers 66, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:66
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    References listed on IDEAS

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    1. Berg, Claes & Jonung, Lars, 1999. "Pioneering price level targeting: The Swedish experience 1931-1937," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 525-551, June.
    2. Michael D. Bordo & Barry Eichengreen & Jongwoo Kim, 1998. "Was There Really an Earlier Period of International Financial Integration Comparable to Today?," NBER Working Papers 6738, National Bureau of Economic Research, Inc.
    3. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
    4. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    5. Jonung, Lars, 1979. "Knut wicksell's norm of price stabilization and Swedish monetary policy in the 1930's," Journal of Monetary Economics, Elsevier, vol. 5(4), pages 459-496, October.
    6. Murray, J. & Van Norden, S. & Vigfusson, R., 1996. "Excess Volatility and Speculative Bubbles in the Canadian Dollar: Real of Imagined?," Technical Reports 76, Bank of Canada.
    7. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, Oxford University Press, vol. 84(2), pages 197-216.
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    Cited by:

    1. Ghosh, Saibal, 2001. "Financial Stability and Public Policy: An Overview," MPRA Paper 19757, University Library of Munich, Germany.

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