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Home > Education and Museum > Financial Stability and Central Banks

Financial Stability and Central Banks

By Richard A. Brealey, Alastair Clark, Charles Goodhart, Juliette Healey, Glenn Hoggarth, David T. Llewellyn, Chang Shu, Peter Sinclair and Farouk Soussa

Recent events remind us how crucial it is that the banking and payments system should be protected from risks and crises. The difficulties that beset Indonesia, South Korea and Thailand in 1997 are a vivid example, as are the acute problems that confronted Russia in 1998, and the underperformance chronic financial malaise that underlay Japan's macroeconomic underperformance throughout the 1990s. Even more dramatic was the banking and economic collapse in the US and much of Europe in the 1930s.

It is a prime responsibility for central banks to try to prevent and contain the financial crises that could precipitate such a calamity. This book, developed from the Central Bank Governor's Symposium on Financial Stability and written by current policy-makers, offers a highly informed account of contemporary policy issues and explores the legal, regulatory, managerial and economic issues that affect central banks, including:
  • banking crises
  • regulatory and supervisory regimes
  • the role of central banks
  • crisis management
  • the role of bank capital
  • capital flows and capital controls.
Financial Stability and Central Banks provides an up-to-date and comprehensive overview that will prove invaluable to economists, researches, bankers, policy-makers and students in this field.

This lecture describes the United Kingdom's experience with inflation targeting. It provides a historical perspective to the introduction of inflation targeting, discusses the concept of inflation targets, and compares an inflation targeting regime with money supply and exchange rate targeting regimes. It is noteworthy that inflation targeting is based on the assumption that low inflation is the proper objective of monetary policy.

A significant portion of the lecture covers the issue of the measurement of inflation. It discusses whether asset prices should be taken into account in the inflation measure and looks in particular at the experience of Japan in the late 1980s. It also considers sources of imperfection in traditional measures. It concludes that monetary policy will have to be conducted by reference to estimated price indexes that fall short of the conceptual ideal but does not regard this as seriously undermining an inflation targeting regime. The lecture goes on to discuss the issues of (1) having a target band for inflation or not, (2) the difficulty in forecasting inflation, and (3) the time horizon over which monetary policy should aim.

The lecture highlights the important role that openness and transparency play in achieving credibility in monetary policy. It highlights the five devices that are now in use in the United Kingdom, and notes some of the benefits emerging from the open and transparent nature of the United Kingdom approach. It concludes by warning that inflation targeting does not promise to make monetary policy easy but does have the positive virtue of directing attention to many technical issues that need to be resolved in conducting monetary policy.

To obtain a copy of this publication, visit Routledge

Financial Stability and Central Banks