BIS-ECB Workshop on "Monetary Policy and Financial Stability"

About the workshop

Monetary policy, interpreted broadly as encompassing both interest rate policy as well as measures that operate through the central bank balance sheet, was at the forefront of the authorities' responses to the ongoing financial crisis. All major central banks have cut policy rates, in some cases to levels approaching zero. In addition, central banks have used their balance sheets to address the malfunctioning of money and credit markets, virtually replacing the interbank money market. Some central banks have also been involved in policy measures aimed at recapitalising the banking system. The recent events demonstrate the close links between monetary policy and financial stability.

The aim of the workshop, organised jointly by the Bank for International Settlements and the European Central Bank and to be held in Basel on 10 and 11 September 2009, is to bring together academics and central bankers to discuss the role for monetary policy in both crisis management and crisis prevention. The workshop will focus on lessons to be learned from the recent and past crises on both aspects. The topics to be discussed are related, but are not necessarily limited to, the following questions:

How effective have monetary policy measures been in the recent and past crises? What is the relationship between interest rate and balance sheet policies of central banks? How does the zero-lower bound on interest rates affect the monetary policy response? What is the relationship between monetary and fiscal policy in a crisis? Have monetary and fiscal policies become increasingly intertwined? How will this affect central bank independence (both in terms of instruments or goals)?
What are the costs of asset price and credit boom/bust cycles? Can excess borrowing or other types of financial imbalances be identified before they may lead to stress? Is a policy that "leans against the wind" desirable and feasible? How does monetary policy interact with other policies in this respect?
What have we learned regarding the transmission channels of monetary policy during boom/bust cycles? Does monetary policy affect risk-taking over and above conventional transmission channels?
How should central bank strategies be adjusted in light of the lessons from the crisis? Are there any implications for the right length of the policy horizon?

Workshop organisers

• Claudio Borio, Bank for International Settlements
• Carsten Detken, European Central Bank
• Frank Smets, European Central Bank
• Christian Upper, Bank for International Settlements