Svensson: Monetary Policy after the Crisis
Deputy Governor Lars E. O. Svensson delivered a speech at the Federal Reserve Bank of San Francisco on Tuesday. In the speech, Mr Svensson discussed the lessons learned for monetary policy during the financial crisis and the relation between monetary policy and financial stability. According to Mr Svensson, flexible inflation targeting – applied in the right way – is the policy that has worked, works and will work best before, during and after the financial crisis. The crisis was not due to a misconceived monetary policy, but to a failure of supervision and regulation. It is a new financial stability policy that is required, not a new monetary policy. Monetary policy and financial stability policy have different objectives and different suitable instruments and are best conducted separately, although they should naturally take each other into account. It is not meaningful to have financial stability as an objective for monetary policy, but it may be meaningful to have financial stability as an objective of the central bank, providing that the central bank is given control of the means of achieving financial stability. He also discussed the role that monetary policy instruments other than the policy rate can play when the policy rate is close to zero. In conclusion, Mr Svensson outlined a number of challenges for the emerging economies relating to capital flows and the development of their exchange rates.
You can read the entire speech in the PDF file below.
