Ingves: Monetary policy and financial stability – some future challenges
Governor Stefan Ingves presented a speech on Monday at the Swedish Economic Association. He started by establishing that the financial crisis had functioned as a catalyst for a discussion on reassessment and renewal. The spotlight has primarily been focused on the work of maintaining financial stability, but the crisis has also raised the issue of whether there may be lessons to be learned for monetary policy.
In his speech, Governor Ingves discussed some of the challenges he sees central banks facing in the period ahead. These concerned, for example, whether the regulations following in the wake of the financial crisis may affect the impact of monetary policy. The financial crisis has also brought to the fore the question of how credit-driven imbalances, above all on the property market, should best be counteracted. Governor Ingves said that a combination of policy rates and regulations is probably the most practical path.
One general conclusion Governor Ingves reached is that the problems and shortcomings exposed by the financial crisis have not been a decisive blow for the prevailing monetary policy arrangements: “I still believe that the best model is an inflation targeting policy conducted in an open and clear manner, and in which the work of clarification and development continue apace. However, it is obvious that we need to learn more about how financial imbalances should be handled, and that the crisis will have consequences for central banks' methods of working.” One such consequence, Governor Ingves said, is that monetary policy and regulatory activities will probably become more intertwined in the future. However, at present it is still too early to draw any conclusions about how this will affect the practical work.
“Something that can, however, be said with certainty is that we will probably never completely be able to prevent financial crises – here, history speaks all too clearly. But I do believe that now, when our awareness of the problems is unusually great, we have the chance to design regulations and frameworks that will at least make these crises a little rarer and a little less dramatic,” concluded Governor Ingves.
Read the whole speech in the PDF file below.
