Central banks should view financial stability as being just as important as monetary policy, the chairman of the US Federal Reserve suggested last night.
Speaking at the Federal Reserve Bank of Boston’s economic conference, Ben Bernanke said he expects monetary policy will continue to be standard approach used by central banks to promote macroeconomic stabilisation.
“However, central banks are also heeding the broader lesson, that the maintenance of financial stability is an equally critical responsibility,” Bernanke added.
“Central banks certainly did not ignore issues of financial stability in the decades before the recent crisis, but financial stability policy was often viewed as the junior partner to monetary policy.
“One of the most important legacies of the crisis will be the restoration of financial stability policy to co-equal status with monetary policy.”
The Fed chief also suggested the bank may be called upon to exercise monetary policy tools to tackle asset bubbles and thereby promote financial stability, although he stressed that regulation should remain the first line of defence here.
Bernanke also hinted that the Fed may endeavour to become more transparent in the years ahead, saying communication will become an increasingly important tool for promoting financial and economic stability.
The chairman pointed out that the recent crisis has seen central banks make use of two less conventional policy tools - forward guidance on interest rates and the expansion or manipulation of their balance sheets through quantitative easing.
Although the bank’s balance sheet will rarely be used for macroeconomic stabilisation unless circumstances dictate it necessary, the Fed is likely to continue using forward guidance in more normal economic conditions, he added.
In August, the Fed said it would keep interest rates “exceptionally low” until the middle of 2013, followed the past examples set by institutions such as the Bank of Canada, the Bank of Japan, the Reserve Bank of New Zealand, the Norges Bank and the Swedish Riksbank.
Source: www.fundweb.co.uk
Speaking at the Federal Reserve Bank of Boston’s economic conference, Ben Bernanke said he expects monetary policy will continue to be standard approach used by central banks to promote macroeconomic stabilisation.
“However, central banks are also heeding the broader lesson, that the maintenance of financial stability is an equally critical responsibility,” Bernanke added.
“Central banks certainly did not ignore issues of financial stability in the decades before the recent crisis, but financial stability policy was often viewed as the junior partner to monetary policy.
“One of the most important legacies of the crisis will be the restoration of financial stability policy to co-equal status with monetary policy.”
The Fed chief also suggested the bank may be called upon to exercise monetary policy tools to tackle asset bubbles and thereby promote financial stability, although he stressed that regulation should remain the first line of defence here.
Bernanke also hinted that the Fed may endeavour to become more transparent in the years ahead, saying communication will become an increasingly important tool for promoting financial and economic stability.
The chairman pointed out that the recent crisis has seen central banks make use of two less conventional policy tools - forward guidance on interest rates and the expansion or manipulation of their balance sheets through quantitative easing.
Although the bank’s balance sheet will rarely be used for macroeconomic stabilisation unless circumstances dictate it necessary, the Fed is likely to continue using forward guidance in more normal economic conditions, he added.
In August, the Fed said it would keep interest rates “exceptionally low” until the middle of 2013, followed the past examples set by institutions such as the Bank of Canada, the Bank of Japan, the Reserve Bank of New Zealand, the Norges Bank and the Swedish Riksbank.
Source: www.fundweb.co.uk
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