Financial Globalization and Monetary Policy

63 Pages Posted: 12 Aug 2010

See all articles by Steven B. Kamin

Steven B. Kamin

Board of Governors of the Federal Reserve System

Date Written: June 30, 2010


This paper reviews the available evidence and previous research on potential effects of financial globalization, that is, the international integration of financial markets. In particular, we address the questions: Has financial globalization materially increased the influence of external developments on domestic monetary conditions? And, has it reduced the influence of central banks over financial and economic conditions in their own country? We find that central banks with floating currencies retain the ability to independently determine short-term interest rates and thus influence broader financial conditions and macroeconomic performance in their economies. However, domestic financial conditions appear to have become more vulnerable to a wide range of external shocks, complicating the task of making appropriate monetary policy decisions. Moreover, the financial crisis has highlighted the importance of cross-border channels for the transmission of liquidity and credit shocks. With financial transactions increasingly being undertaken in vehicle currencies such as dollars and euros, the liquidity provision and the lender-of-last resort functions of many central banks are being challenged. Accordingly, international arrangements for liquidity provision may become increasingly important in the future.

Keywords: Globalization, Monetary Policy, Interest Rates

JEL Classification: E43, E44, E50, F40

Suggested Citation

Kamin, Steven B., Financial Globalization and Monetary Policy (June 30, 2010). FRB International Finance Discussion Paper No. 1002. Available at SSRN: or

Steven B. Kamin (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-3339 (Phone)
202-736-5638 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics