Interaction of Monetary and Financial Stability Policies

March 08, 2016

A new course jointly organized by the JVI and the Bank of England’s Centre for Central Banking Studies (CCBS) during November 23-27, 2015, explored how monetary and macroprudential policies interact. Topics ranged from conceptual issues and country case studies to model-based approaches. After introductory lectures on macroprudential and on monetary policy, the course discussed alternative arrangements for coordinating the two; how to detect asset price bubbles and whether monetary policy should react to them; differences between business and financial cycles; and the UK policy experience. The course also dealt with how to model optimal monetary and macroprudential policy, policies for dealing with credit-funded housing booms, and policies for managing FX lending.

The course featured two workshops designed at the JVI. In the workshop on financial cycles, participants applied to UK data both a turning-point algorithm and the Hodrick-Prescott filter to identify upturn and downturn phases of the UK financial cycles. In the workshop on credit-funded housing booms, participants were separated into three groups and, based on macrofinancial data for a virtual country, tasked to design a monetary-macroprudential policy mix to deal with strong growth in credit and house prices in a low-inflation environment. Group representatives then presented their policy recommendations to the whole class. The course also promoted peer-to-peer learning by incorporating a session in which selected participants shared the experiences of their countries with the interaction of monetary and financial stability policies.  

The course featured two guest lectures. In the first, Mr. Tidiane Kinda (IMF) discussed the latest issue of the IMF Fiscal Monitor, which deals with how commodity price cycles affect the fiscal positions of commodity-exporting countries. In the second, Mr. Martin W. Johansson, Deputy Director of the Swedish Riksbank’s Financial Stability Department, reviewed the recent Swedish experience with monetary and macroprudential policies.

The course closed with a quiz session prepared by the CCBS. Participants were split into six groups and given questions on which they worked as a group. After about 10 minutes, the correct answers were revealed and discussed by the entire class and the groups were graded. The group-based quiz worked well to reinforce the main points covered. Participants also very much enjoyed the session, not only because of the intense (though friendly) competition between the groups but also because there were a few quiz questions not related to the course, e.g., from sports.

In line with the agreement on alternating the broad topics of financial stability and monetary policy, the JVI and the CCBS will organize a joint course on Macroprudential Tools in 2016, scheduled for November 21-25. We anticipate running the course on Interaction of Monetary and Financial Stability Policies again in 2017.

Adam Gersl, Senior Economist, JVI

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