Accumulating debt raises concerns about its implications for macroeconomic stability. This paper sheds light on the implications of high indebtedness for the macroeconomic volatility by identifying the main drivers of the evolution of debt in a set of countries.
Financial Stability and Monetary Policy: Happy Marriage or Untenable Union? Williams The very real and sizable costs of using monetary policy to deal with risks to financial stability—along with the uncertain benefits of doing so—argues for finding alternative tools with more favorable tradeoffs.
Policymakers should study ways to design policy frameworks that support financial stability, with only a modest cost to macroeconomic goals and anchoring inflation expectations. At the Federal Reserve, policymakers often point to financial stability concerns as relevant to their monetary policy decisions, especially in the context of the current extraordinarily accommodative stance of policy.
The Norges Bank explicitly incorporates financial stability in its monetary policy discussions and decisions. In my remarks today, therefore, I will discuss what I view as the key issues regarding the appropriate role of monetary policy in supporting financial stability.
Before I proceed, I should make clear what I mean by financial stability. The heightened attention to the connections between monetary policy and financial stability represents a sea change from the consensus that was reached in the years preceding the global financial crisis.
Back then, central bankers were nearly unanimous in their undying faith and fealty to a variant of inflation targeting, whereby monetary policy should be single-mindedly focused on price stability and, usually more quietly, macroeconomic stabilization.
Indeed, this approach was codified in numerous central bank charters, which in some cases dictated consequences if the inflation goal was not met.
Even at the Federal Reserve, where inflation targeting was never formally adopted, financial stability was rarely discussed at monetary policy meetings during the run-up to the financial crisis Fligstein et al. Instead, policymakers and the segment of the economics profession interested in central banking focused on the task of attaining and preserving price and economic stability.
An enormous effort went into theoretical and empirical research on best practice monetary policy strategies within this general framework.
CASE Network Studies and Analyses No Februari The European Central Bank (ECB) recently became engaged in macro-prudential policies and the micro . As China transitions from prioritizing economic growth to maintaining economic stability, the government has begun levying steep penalties on high-debt private companies for “economic crimes.” Kiana Mendoza looks at several recent examples of these trials, and examines what this could mean for. ) Debt and Deficits From a macroeconomic perspective, government debt can be thought of as future spending brought forth into present time. Governments incur debt when their spending desires.
This research was completely abstracted from any concerns related to financial stability. The elevation of financial stability concerns at central banks and other regulatory agencies is a natural reaction to the events of the global financial crisis, when the near meltdown of the financial systems in many countries almost toppled the global economy.
Even with the dramatic—and in many cases, unprecedented—actions of governments and central banks, the fallout from the financial crisis has been greater and longer-lasting than had been experienced in generations.
Indeed, this renewed concern for financial stability represents more a return to the roots of central banking than new-age thinking. After all, the Federal Reserve was created from the ashes of the panics and resulting depressions that tormented the U. The renewed recognition of the importance of preserving financial stability is entirely appropriate and perhaps long overdue.
However, the current discussion of the relationship between financial stability and monetary policy has mostly lacked rigorous theoretical and empirical analysis. We all talk about the need to account for financial stability in thinking about monetary policy, but, to borrow a phrase from American TV lore: What are the costs of using monetary policy actions to address perceived or potential risks to financial stability?
How do monetary policy actions affect financial stability risks? Can monetary policy be designed to improve these tradeoffs?
Perhaps this issue is best illustrated by the ongoing debates at the Riksbank regarding the appropriate course for monetary policy.
In using this example, I am in no way judging the decisions that have been made; rather, I am using it as a timely real-world illustration of this issue. In a nutshell, the Sveriges Riksbank has undertaken a somewhat tighter stance of monetary policy than it would were it based purely on macroeconomic conditions.
This situation is not unique: Financial stability considerations have played out in Norway as well. These decisions have clear and important costs in terms of achieving unemployment and inflation goals.
For example, Lars Svenssonand references therein uses model simulations to show that the monetary policy actions of the Riksbank, based on a concern for financial stability, have induced a significantly higher rate of unemployment and a sustained shortfall of inflation relative to its target.
He goes on to argue that the policy, by reducing income, has actually increased the already high household debt-to-income ratio, potentially exacerbating financial stability risks.
Preserving the nominal anchor Turning to the risks: The costs of modifying the stance of monetary policy in deference to financial stability considerations may be even greater than those implied by cyclical deviations of inflation and economic activity from desired levels.
If the central bank actions aimed at addressing financial stability risks are large and persistent, the inflation rate will likely deviate from target for many years.Using a large panel of OECD countries this paper studies the link between debt and macroeconomic stability by comparing the evolution of balance sheet aggregates and economic output in high- and lowdebt environments.
EFFECT OF CREDIT MANAGEMENT ON PERFORMANCE OF COMMERCIAL BANKS IN RWANDA (A CASE STUDY OF EQUITY BANK RWANDA LTD) Alice Kagoyire and Dr. Jaya Shukla Jomo Kenyatta University of Agriculture and Technology, Kigali, Rwanda. stability and continuing profitability, while deteriorating credit quality is the most frequent.
But even beyond this extreme case, there is general agreement that a stable and predictable economic environment contributes substantially to social and economic welfare.
In the short-run, households prefer to have economic stability with continuous employment and stable incomes, allowing them to maintain stable consumption over time. Changing Lives: Country Case Studies.
The IMF's Statistics Department provides unique capacity development (CD) to support better data for better macroeconomic policies.
Myanmar needed to significantly boost its capacity in macroeconomic management, essential for maintaining macroeconomic stability and achieving sustainable, inclusive. DEBT AND MACROECONOMIC STABILITY Main findings Public and private debt levels are very high by historical standards.
OECD-wide total financial liabilities now pronounced in the case of the recent cycle. Low debt High debt Gross domestic product, volume, market prices Private consumption expenditure, volume.
Among the aggregate economic phenomena macroeconomic theory considers include: i) Inflation ii) The interest rate iii) The growth rate of income/output iv) The rate of unemployment v) Government spending vi) Private domestic investment vii) Aggregate disposable income viii) The general price level.
Macroeconomic theory is the explanation of how.