Hostname: page-component-848d4c4894-2pzkn Total loading time: 0 Render date: 2024-05-16T15:16:30.471Z Has data issue: false hasContentIssue false
  • English
  • Français

Monetary and Financial Stability: So Close and Yet So Far?

Published online by Cambridge University Press:  26 March 2020

Claudio Borio
Claudio Borio*
Affiliation:
Bank for International Settlements
*
e-mail: Claudio.Borio@bis.org
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper argues that changes in the financial and monetary regimes since the early 1980s may have made it more likely that financial factors in general, and the booms and busts in credit and asset prices in particular, act as drivers of economic fluctuations. As a result, the current environment may be more vulnerable to the occasional build-up of financial imbalances, ie. overextensions in (private sector) balance sheets that herald economic weakness and disinflation down the road, as they unwind, raising also the risk of financial strains and possibly even broader financial instability. Achieving simultaneously monetary and financial stability may call for some significant refinements to current policy frameworks, based on closer cooperation between prudential and monetary authorities. These refinements include a strengthening of the macroprudential orientation of regulatory and supervisory frameworks ensuring that monetary frameworks allow enough room for manoeuvre to lean pre-emptively against the build-up of the imbalances.

Keywords

financial imbalancesasset pricescreditmonetary stabilityfinancial stabilityE32E37E44E58G21G28
Type
Articles
Information
National Institute Economic Review , Volume 192 , April 2005 , pp. 84 - 101
Copyright
Copyright © 2005 National Institute of Economic and Social Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

The views expressed are those of the author and not necessarily those of the BIS.

References

Amato, J. and Furfine, C. (2003), ‘Are credit ratings procyclical?’, BIS Working Papers no. 129, February.CrossRefGoogle Scholar
Amato, J. and Shin, H. S. (2003), ‘Public and private information in monetary policy models’, BIS Working Papers no. 138, September.CrossRefGoogle Scholar
Bäckström, U (2002), ‘Financial cycles’, BIS Review, 68, November.Google Scholar
Bank for International Settlements (2001), ‘Cycles and the financial system’, BIS 71st Annual Report, Chapter VII, June, pp. 123–141.Google Scholar
Bank for International Settlements (2002), ‘The interaction between the financial sector and the real economy’, BIS 72nd Annual Report, Chapter VII, June, pp. 122–140.Google Scholar
Bank for International Settlements (2003), ‘The financial sector’, BIS 73rd Annual Report, Chapter VII, June, pp. 120–141.Google Scholar
Bank of England (2002), Minutes of Monetary Policy Committee Meeting, 6 and 7 November.Google Scholar
Bean, C. (2003), ‘Asset prices, financial imbalances and monetary policy: are inflation targets enough?’, BIS Working Papers no. 140, September.CrossRefGoogle Scholar
Bordo, M, Dueker, M. and Wheelock, D. (2000), ‘Aggregate price shocks and financial instability: an historical analysis’, NBER Working Paper no. 7652, April.CrossRefGoogle Scholar
Borio, C. (2003), ‘Towards a macro-prudential framework for financial supervision and regulation?’, CESifo Economic Studies, 49, 2/2003, Summer, pp 181–215. Also available as BIS Working Papers no. 128, February.CrossRefGoogle Scholar
Borio, C. (2004a), ‘The search for the elusive twin goals of monetary and financial stability’, paper presented at the IGIDR 6th Conference on Money and Finance,Google Scholar
forthcoming in the Greek Economic Review.Google Scholar
Borio, C. (2004b), ‘Market distress and vanishing liquidity: anatomy and policy options’, BIS Working Papers no. 158, July.CrossRefGoogle Scholar
A previous version is also available in Persaud, A (ed.), Liquidity Black Holes: Understanding, Quantifying and Managing, Financial Liquidity Risk, Risk Publications, December 2003, pp. 213–249.Google Scholar
Borio, C. and Crockett, A. (2000), ‘In search of anchors for financial and monetary stability’”, Greek Economic Review, 20 (2), Autumn, pp. 1–14.Google Scholar
Borio, C, English, B. and Filardo, A. (2003), ‘A tale of two perspectives: old or new challenges for monetary policy?’, BIS Working Papers no. 127, February.CrossRefGoogle Scholar
Borio, C. and Filardo, A. (2004), ‘Back to the future? Assessing the deflation record”, BIS Working Papers no. 152, March.CrossRefGoogle Scholar
Abridged version available as ‘Looking back at the international deflation record’, The North American Journal of Economics and Finance, 15, 3, December, pp. 287–311.CrossRefGoogle Scholar
Borio, C, Furfine, C. and Lowe, P. (2001), ‘Procyclicality of the financial system and financial stability: issues and policy options’, in Marrying the macro- and micro-prudential dimensions of financial stability, BIS Papers, 1, March, pp. 1–57.Google Scholar
Borio, C, Kennedy, N. and Prowse, S. (1994), ‘Exploring aggregate asset price fluctuations across countries: measurement, determinants and monetary policy implications’, BIS Economic Papers, 40, April.Google Scholar
Borio, C. and Lowe, P. (2002a), ‘Asset prices, financial and monetary stability: exploring the nexus’, BIS Working Papers no. 114, July.CrossRefGoogle Scholar
Borio, C. and Lowe, P. (2002b), ‘Assessing the risk of banking crises’, BIS Quarterly Review, December, pp. 43–54.Google Scholar
Borio, C. and Lowe, P. (2004), ‘Securing sustainable price stability: should credit come back from the wilderness?, BIS Working Papers no. 157, July.CrossRefGoogle Scholar
Borio, C. and McGuire, P. (2004), ‘Twin peaks in equity and housing prices?’, BIS Quarterly Review, March, pp. 79–93.Google Scholar
Borio, C. and Tsatsaronis, K. (2004), ‘Accounting and prudential regulation: from uncomfortable bedfellows to perfect partners?’, Journal of Financial Stability, 1, 1, September, pp. 111–135.CrossRefGoogle Scholar
Borio, C. and White, W. (2004), ‘Whither monetary and financial stability? The implications of evolving policy regimes’, in Monetary Policy and Uncertainty: Adopting a Changing Economy, a symposium sponsored by the Federal Reserve Bank of Kansas, 28-30 August 2003, pp. 131–211; also available as BIS Working Papers no. 147, February.Google Scholar
Catarineu-Rabell, E., Jackson, P. and Tsomocos, D.P. (2003), ‘Procyclicality and the new Basel Accord - banks’ choice of loan rating system’, Bank of England Working Papers no. 181, March.CrossRefGoogle Scholar
Committee on the Global Financial System (1999), ‘A review of financial market events in autumn 1998’, CGFS Report, 12, October.Google Scholar
Crockett, A. (2000), ‘Marrying the micro- and macro-prudential dimensions of financial stability’, BIS Speeches, 21 September.Google Scholar
Davis, P. and Zhu, H.B. (2004), ‘Bank lending and commercial property cycles: some cross-country evidence’, BIS Working Papers no. 150, March.CrossRefGoogle Scholar
Disyatat, P. (2005), ‘Inflation targeting, asset prices and financial imbalances: conceptualising the debate’, BIS Working Papers no. 168, February.CrossRefGoogle Scholar
Dodge, D. (2003), ‘A coherent monetary policy framework and asset prices’, remarks presented to researchers at the Bank of Canada and elsewhere in regard to the potential role of asset prices in the conduct of monetary policy, Bank of England Speeches, February.Google Scholar
Filardo, A. (2003a), ‘The enduring core of business cycle’, paper prepared for a conference honouring the contributions of Victor Zarnowitz to the study of business cycles - theory, history, indicators and forecasting at the Rheinisch-Westfalisches Institut für Wirtschaftsforschung (RWI) in Essen, Germany, 27-28 June, BIS Working Papers (forthcoming).Google Scholar
Filardo, A. (2003b), ‘Should monetary authorities prick asset price bubbles?’, paper presented at the EEA meetings, BIS Working Papers (forthcoming).Google Scholar
Filardo, A. and Gordon, S.F. (1998), ‘Business cycle durations’, Journal of Econometrics, 85, 1, July, pp. 99–123.CrossRefGoogle Scholar
Flannery, M. (1998), ‘Using market information in prudential bank supervision: a review of the US empirical evidence’, Journal of Money, Credit and Banking, part I, August, pp. 273–305.CrossRefGoogle Scholar
Gerlach, S. and Smets, F. (1999), ‘Output gaps and monetary policy in the EMU area’, European Economic Review, 43, pp. 801–812.CrossRefGoogle Scholar
Gjedrem, S. (2003), ‘Financial stability, asset prices and monetary policy’, speech at the Centre for Monetary Economics/Norwegian School of Management, BIS Review, 25, June.Google Scholar
Goodhart, C. and De Largy, P. (1999), ‘Financial crises: plus ça change, plus c'est la mème chose”, LSE Financial Markets Group, Special Papers, 108, January.Google Scholar
Greenspan, A. (2002), ‘Cyclicality and banking regulation’, remarks given at the conference on Bankstructure and Competition, Federal Reserve Bank of Chicago, 10 May.Google Scholar
Hofmann, B. (2001), ‘The determinants of bank credit to the private sector in industrialised countries’, BIS Working Papers no. 108, December.Google Scholar
Issing, O. (2003), ‘Monetary and financial stability: is there a tradeoff?’, BIS Papers, 18, September, pp. 16–23.Google Scholar
Jordan, J., Peek, J. and Rosengren, E. (2002), ‘Credit risk modeling and the cyclicality of capital’, paper presented at the BIS Conference on ‘Changes in risk through time: measurement and policy options’, Basel, 5-6 March.Google Scholar
Kindleberger, C. (2000), Manias, Panics and Crashes, 4th edition, Cambridge, Cambridge University Press.CrossRefGoogle Scholar
King, M. (2002), ‘The inflation target ten years on’, speech presented at the London School of Economics, Bank of England Speeches, 19 November.Google Scholar
Knight, M.D. (2003), ‘Three observations on market discipline’, speech delivered at the BIS-Federal Reserve Bank of Chicago Conference on ‘Market Discipline’ in Chicago, BIS Speeches, 30 October.Google Scholar
Lowe, P. (2002), ‘Credit risk measurement and procyclicality’, BIS Working Papers no. 116, August.CrossRefGoogle Scholar
McCauley, R., Ruud, J.S. and Iacono, F. (1999), Dodging Bullets: Changing US Corporate Capital Structures in the 1980s and 1990s, Cambridge, Massachusetts, MIT Press.CrossRefGoogle Scholar
Modigliani, F. and Cohn, R.A. (1979), ‘Inflation, rational valuation and the market’, Financial Analysts Journal, 35, pp. 24–44.CrossRefGoogle Scholar
Okina, K., Shirakawa, M. and Shiratsuka, S. (2001), ‘Asset price bubble and monetary policy: Japan's experience in the late 1980s and the lessons’, IMES Discussion Paper no. 2000-E-12, Institute for Monetary and Economic Studies, Bank of Japan.Google Scholar
Padoa-Schioppa, T. and Saccomanni, F. (1994), ‘Managing a market-led global financial system’, in Managing the World Economy: Fifty Years After Bretton Woods, Washington, IIE, pp. 235–268.Google Scholar
Schwartz, A. (1995), ‘Why financial stability depends on price stability’, Economic Affairs, Autumn, pp. 21–25.CrossRefGoogle Scholar
Segoviano, M.A. and Lowe, P. (2002), ‘Internal ratings, the business cycle and capital requirements: some evidence from an emerging market economy’, BIS Working Papers no. 117, August.Google Scholar
Smets, F. (1998), ‘Output gap uncertainty: does it matter for the Taylor rule?’, BIS Working Papers no. 60, November.CrossRefGoogle Scholar
Stevens, G.R. (2003), ‘Structural change and the conduct of monetary policy’, remarks at Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, 30 August.Google Scholar
Tarashev, N., Tsatsaronis, K. and Karampatos, D. (2003), ‘Investors’ attitude towards risk: what can we learn from options?’, BIS Quarterly Review, June, pp. 57–66.Google Scholar
Tsatsaronis, K. (2000), ‘An indicator of investors’ attitude towards risk’, BIS Quarterly Review, February, pp. 12–13.Google Scholar
Tsatsaronis, K. (2004), ‘Systemic financial risk and macroprudential supervision’, paper presented at the Bocconi University Centennial conference on ‘Risk and stability in the financial system: what roles for regulators, management and market discipline?’, BIS Working Papers (forthcoming).Google Scholar
Tsatsaronis, K. and Zhu, H. (2004), ‘What drives housing price dynamics: cross-country evidence’, BIS Quarterly Review, March, pp. 65–78.Google Scholar