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Monetary Policy Strategies in the Asia and Pacific Region : What Way Forward?

  • Andrew Filardo

    (Asian Development Bank Institute)

  • Hans Genberg

Monetary policy frameworks in the Asia and Pacific region have performed well in the past decade as judged by inflation outcomes. We argue that this is due to three principal factors : (i) central banks have focused on price stability as the primary objective of monetary policy, (ii) institutional setups have been put in place that are supportive of the central banks abilities to carry out their objectives, and (iii) economic policies in general have been supportive of the pursuit of price stability, in particular the adoption of prudent fiscal policies that have reduced concerns of fiscal dominance. The financial systems in the region have also held up well in the face of the current crisis, notwithstanding more adverse liquidity conditions in several markets and pressures on certain exchange rates that spilled over from the West. It may nevertheless be useful to ask whether changes in monetary policy frameworks should be contemplated. This paper concludes that : (i) for economies with well developed financial markets, there may be little value in using unconventional monetary policies in the absence of financial crises, because in normal times such policies are not likely to be effective and may further reduce the efficiency of the financial market; (ii) a good case can be made for elevating the role of the misalignment of asset prices (including exchange rates) and financial imbalances in the conduct of monetary policy; and (iii) financial stability should take on greater importance as an objective for public policy. Whether and how much of the financial stability objective should be assigned to the central bank is still an open question.

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File URL: http://www.eaber.org/node/23011
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Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 23011.

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Date of creation: Jan 2010
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Handle: RePEc:eab:financ:23011
Contact details of provider: Postal: JG Crawford Building #13, Asia Pacific School of Economics and Government, Australian National University, ACT 0200
Web page: http://www.eaber.org

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  1. repec:cup:cbooks:9780521790956 is not listed on IDEAS
  2. Ouyang, Alice Y. & Rajan, Ramkishen S. & Willett, Thomas D., 2010. "China as a reserve sink: The evidence from offset and sterilization coefficients," Journal of International Money and Finance, Elsevier, vol. 29(5), pages 951-972, September.
  3. Andrew Filardo & Hans Genberg, 2010. "Targeting inflation in Asia and the Pacific: lessons from the recent past," BIS Papers chapters, in: Bank for International Settlements (ed.), The international financial crisis and policy challenges in Asia and the Pacific, volume 52, pages 251-273 Bank for International Settlements.
  4. Hans Genberg, 2008. "The changing nature of financial intermediation and its implications for monetary policy," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial market developments and their implications for monetary policy, volume 39, pages 100-113 Bank for International Settlements.
  5. Shigenori Shiratsuka, 2009. "Size and Composition of the Central Bank Balance Sheet: Revisiting Japanfs Experience of the Quantitative Easing Policy," IMES Discussion Paper Series 09-E-25, Institute for Monetary and Economic Studies, Bank of Japan.
  6. Gruen, David & Plumb, Michael & Stone, Andrew, 2005. "How Should Monetary Policy Respond to Asset-Price Bubbles?," MPRA Paper 833, University Library of Munich, Germany.
  7. Fry, M.J., 1996. "Governance at the Macro Level: Assessing Central Bank Independence in Pacific Asia and Other Developing Areas," Discussion Papers 96-27, Department of Economics, University of Birmingham.
  8. Claudio Borio & Piti Disyatat, 2009. "Unconventional monetary policies: an appraisal," BIS Working Papers 292, Bank for International Settlements.
  9. Hans Genberg & Dong He, 2007. "Monetary and Financial Cooperation among Central Banks in East Asia and the Pacific," Working Papers 0715, Hong Kong Monetary Authority.
  10. Sushil Wadhwani, 2008. "Should Monetary Policy respond to Asset Price Bubbles? Revisiting the Debate," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  11. Jerry H Tempelman, 2009. "Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis," Business Economics, Palgrave Macmillan, vol. 44(3), pages 182-183, July.
  12. Stephen G. Cecchetti & Hans Genberg & Sushil Wadhwani, 2002. "Asset Prices in a Flexible Inflation Targeting Framework," NBER Working Papers 8970, National Bureau of Economic Research, Inc.
  13. Peter J. Morgan, 2012. "The Role and Effectiveness of Unconventional Monetary Policy," Chapters, in: Monetary and Currency Policy Management in Asia, chapter 2 Edward Elgar.
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