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Financial Globalization and Monetary Policy

  • Helmut Wagner
  • Wolfram Berger

Recently, it has often been argued that globalization eases the job of central banks as it helps to tame inflation. This is used to argue that central banks (particularly the ECB, referring to the objectives as laid down in the EU-Treaty) could or should reduce their efforts in the fight against inflation in favour of supporting the general economic policies of the governments. This paper is concerned critically with this argument. It points to the structural changes associated with globalization and to the corresponding increase in uncertainty by which the central banks are affected. As an example of this, the increase in financial volatility is analysed and explained as the result of optimal portfolio allocation, and its implications for monetary policy are discussed.

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Paper provided by Netherlands Central Bank in its series DNB Staff Reports (discontinued) with number 95.

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Length: 52 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:dnb:staffs:95
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