An Historical Perspective on Financial Stability and Monetary Policy Regimes: A Case for Caution in Central Banks Current Obsession with Financial Stability

46 Pages Posted: 18 Apr 2018

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: March 16, 2018

Abstract

This paper surveys the co-evolution of monetary policy and financial stability for a number of countries across four exchange rate regimes from 1880 to the present. Historical evidence is presented on the incidence, costs and determinants of financial crises along with some empirical evidence on the relationship between credit booms, asset price booms and serious financial crises. The results suggests that financial crises have many causes, including credit driven asset price booms, which have become more prevalent in recent decades, but that in general financial crises are very heterogeneous and hard to categorize. Two key historical examples stand out in the record of serious financial crises which were linked to credit driven asset price booms and busts: the 1920s and 30s and the Global Financial Crisis of 2007-2008. The question that arises is whether these two 'perfect storms' should be grounds for permanent changes in the monetary and financial environment.

Keywords: monetary policy, financial stability, financial crises, credit driven asset price booms

JEL Classification: E3, E42, G01, N1, N2

Suggested Citation

Bordo, Michael D., An Historical Perspective on Financial Stability and Monetary Policy Regimes: A Case for Caution in Central Banks Current Obsession with Financial Stability (March 16, 2018). Norges Bank Working Paper 5/2018. Available at SSRN: https://ssrn.com/abstract=3160020 or http://dx.doi.org/10.2139/ssrn.3160020

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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