Monetary and macroprudential policies

OTTAWA — More than anything, the financial crisis of 2008-09 was responsible for ushering in a new era of “creative thinking” by central bankers. That translated into near-zero interest rates, followed by rounds of quantitative easing — pumping massive amounts of money into financial systems — and providing monetary policy guidance well beyond the horizon. Now, some are casting even wider nets to include the direct oversight of financial institutions themselves. This is the case in the United States, European Union and the U.K.

Otaviano Canuto, Matheus Cavallari, 21 May 2013The global financial crisis has shattered the confidence of many established principles of monetary policy and financial supervision. This column argues that the two should not remain separate, and maps out the major challenges faced by their complementary implementation.Full Article: Integrating monetary policy and macroprudential regulation

Yves here. This post is a devastating critique of current Fed policy. But Alford sets his stage carefully before delivering his conclusions, so don’t be deceived by the tone of the early sections. By Richard Alford, a former New York Fed economist. Since then, he has worked in the financial industry as a trading floor economist and strategist on both the sell side and the buy side

Today, we are fortunate to have a guest contribution by Ambrogio Cesa-Bianchi and Alessandro Rebucci. It is based upon Does Easing Monetary Policy Increase Financial Instability?.

Tim Duy: Safe Assets and the Coordination of Fiscal and Monetary Policy, by Tim Duy: Kansas City Federal Reserve Bank President Esther George considers the long-run consequences of Federal Reserve policy:

Persistent economic weakness is sapping the ability of governments to tackle the growing threat of climate change and risks a global “perfect storm” of intertwined financial and ecological collapse, the World Economic Forum has warned.

Itai Agur, Maria Demertzis, 13 January 2011What institutions should be responsible for financial stability? Do governments need distinct regulators for distinct objectives or should central banks pursue both price stability and financial stability? This column argues that monetary policy inevitably will involve considerations of financial stability due to its effects on banks' risk taking and says that central banks should embrace this dual role.Full Article: Financial stability is a task for central banks