Policymaking in an interconnected world

Luncheon speech by Mr Jaime Caruana, General Manager of the BIS, at the The Federal Reserve Bank of Kansas City's 36th Economic Policy Symposium on "The changing policy landscape", Jackson Hole, 31 August 2012.


Is there scope for greater international cooperation in monetary policy? The answer is "yes". The need for cooperation in financial regulation is taken for granted but, when it comes to monetary policy, the view is widespread that it is enough to keep one's own house in order. But the case for cooperation can be made by considering the following questions: whether exchange rate fluctuations can really insulate economies against contagion: whether global bond markets are isolated or integrated, and whether fallacies of composition characterise monetary policymaking. We conclude that monetary policy does require international cooperation, particularly when it provides the backing for financial stability. Monetary policymakers need to take further practical steps to complement their domestic analysis with a more global perspective.