Challenges and Response to Conduct Monetary Policy
during the Financial Crisis
Chairman
Charles R. Bean 
Deputy Governor, Bank of England, London
Co-chair
Subir Gokarn
Deputy Governor, Reserve Bank of India, Mumbai
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(a) Recent Economic and Financial Developments and Issues for Conduct of
Monetary Policy - Financial Disruptions and Monetary Policy Flexibility.
The immensely complex innovations in the integrated financial systems coupled with structural
imbalances in the world economy manifested in the form of the worst ever global financial crisis.
This has posed new challenges for the conduct of monetary policy, both in terms of the
assessment of macro-economic risks as well as the use of various policy instruments. Further, this
also forced the policy makers to ponder over the need for greater flexibility in the use of monetary
policy tools, particularly when we face a financial disruption of this magnitude and when all the
traditional monetary policy operations have proved redundant.
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Monetary Policy Flexibility: Solution or Problem?
Lead Speaker
William Poole
Senior fellow at the Cato Institute, Washington D.C.
Formerly Chief Executive of the Federal Reserve Bank of St. Louis, St. Louis, MO
and the Distinguished Scholar in Residence at the University of Delaware |
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Discussant
John Lipsky
First Deputy Managing Director
International Monetary Fund, Washington D.C. |
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(b) Credit Freeze, Dysfunctional Markets and Monetary Policy Transmission
Uncertainty / Policy Options for the Central Banks.
The virulence of the financial crisis led to the confidence failure world over. The financial institutions
were unwilling to lend to each other. This choked up the flow of credit in a broad range of channels.
The financial markets, by all means, became dysfunctional. Recognising the limitations of the
monetary policy transmission mechanisms in such an intense crisis situation, the central banks the
world over resorted to unconventional monetary policy options in addition to the conventional measures.
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Learning from the Crisis: What can Central Banks do?
Lead Speaker
Benjamin M. Friedman
William Joseph Maier Professor, Harvard University, Cambridge, MA
Discussant
Jorgen Elmeskov
Deputy Chief Economist
Organisation for Economic Cooperation and Development, Paris
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(c) The globalisation of financial markets has had major implications for the conduct
of monetary policy. Recent crisis has also irrevocably changed the environment of
monetary policy making. What is then the evolving framework for monetary
policy?
In recent times, the magnitude of international financial transactions and the need for a cohesive
approach to manage these has necessitated an integrated monetary policy formulation. Given this
backdrop what is the kind of framework that is relevant for monetary policy making? Evaluating
inflation-targeting is more complicated than just checking out whether inflation has been on target,
because deviations from the target may aimed at stabilising the real economy. Ex-ante evaluation may
be more relevant than evaluation ex-post. Publication of the interest-rate path also allows the
evaluation of its credibility and the effectiveness of the implementation of monetary policy.
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Flexible Inflation Targeting: Lessons from the Financial Crisis
Lead Speaker
Lars E.O. Svensson
Deputy Governor, Sveriges Riksbank, Stockholm, Sweden
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Discussant
William Poole
Senior fellow at the Cato Institute,Washington D.C.
Formerly Chief Executive of the Federal Reserve Bank of St. Louis, St. Louis, MO
And the Distinguished Scholar in Residence at the University of Delaware |
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