The recent financial crisis in advanced economies has been a wake-up call for policymakers and academics alike. The crisis has underscored the limitations of the prevailing paradigm and the analytical approaches that guided macroeconomic policy and the regulation and supervision of financial intermediaries. Accordingly, in the aftermath of the crisis there is underway a shift of emphasis from the stability of individual institutions to that of the system as a whole, and, at the same time, a shift in view towards tighter interdependence between monetary policy and financial stability. Both of these policy shifts are expected to bring into sharper consistency and alignment the nexus between the financial system and the real economy. How can we make this paradigm shift operational in Asian and Latin American central banks? How should Asian and Latin American central banks operationalize their financial stability mandates without jeopardizing price stability? How and to what extent can regional monetary and financial cooperation among emerging markets contribute in operationalizing this shift in emphasis? What are the implications of commodity price booms and volatile exchange rates and capital flows on the operationalization of such financial and price stability mandates in Asian and Latin American central banks? These were some of the important questions which were raised and addressed at the inaugural seacen-cemla Conference on “The Implementation of Monetary Policy: Lessons from the Crisis and Challenges for Coming Years”, hosted by Bank Negara Malaysia and co-sponsored by Banco de la República (Central Bank of Colombia) in Kuala Lumpur, Malaysia, on October 13-15, 2011.
The Conference provided a unique opportunity for central banks from the Asian, Latin American and Caribbean regions for the sharing of experiences and deliberating on the lessons learned from monetary policy responses to the recent global financial crisis, as well as for identifying the challenges ahead in the formulation and implementation of monetary policy. The discussions provided some food for thought on how existing policy frameworks can be refined, including the predication of a tighter linkage between monetary policy and financial stability as well as a greater awareness of the international dimension of such refinements. The discussions also illuminated the need to manage expectations, especially in terms of recognising the limits that central banks face in managing the economy.
A number of key messages emerged from the discussions, including the following: first, additional emphasis has to be accorded to the risks associated with the buildup of financial imbalances and this will require policies that aim at limiting the exposure of the financial system to such systemic risks. Specifically, the implementation of policies based on a macroprudential framework requires a set of instruments that has to be wider than the standard monetary policy and supervisory toolkit. Second, the implementation of such policies will entail an institutional framework that governs the deployment of these sets of instruments, as well as a clear delineation between the mandates of monetary and macroprudential policies. Third, central banks should formally take a lead role in the formulation and implementation of such macroprudential policies. Fourth, in an environment of soaring commodity prices driven by unsustainable strong global demand, central banks should be ready for a more aggressive monetary policy stance. Finally, central banks need to take better account of the impact of their actions on other economies, and as such greater central bank cooperation is needed to achieve a favourable outcome in this increasingly globalised world.
We are indeed elated that the papers presented in this Conference are being made available to a wider audience through the publication of the Conference Proceedings. The first Conference is paving the way for further collaboration between seacen and cemla, including through annual joint conferences to be held alternatively in Latin America and Asia, and a joint website which features collaborative activities between the two institutions and linkages to their respective member central banks/monetary authorities. Looking forward, it is hoped that these efforts will be platforms for Asian and Latin American central banks to promote cross-regional collaboration in central bank learning, strengthen networking relationships, share expertise and exchange valuable ideas and experiences from the two regions.
The SEACEN Centre
|J.E. Guzmán Calafell
Submission process for
CEMLA receives articles or essays (papers in general) for peer-review refereeing on a continuous basis. Any person may submit original papers to be published in Monetaria provided the author or owner of its rights authorizes CEMLA to submit the article for peer-review refereeing and grants the Center translating, editing and publishing rights if accepted for publication.