A Tale of Two Perspectives: Old or New Challenges for Monetary Policy?

66 Pages Posted: 13 Dec 2005

See all articles by Claudio E. V. Borio

Claudio E. V. Borio

Bank for International Settlements (BIS) - Research and Policy Analysis

William B. English

Board of Governors of the Federal Reserve System

Andrew J. Filardo

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: February 2003

Abstract

This paper reviews the challenges faced by central banks in recent years in order to evaluate their policy implications going forward. To highlight the genuine uncertainty surrounding the lessons to be drawn, the paper examines recent experience through two intentionally polarised perspectives, viz. the "continuity" and "new-environment" views. These perspectives lead to somewhat different conclusions regarding the nature of the challenges central banks are likely to face in the current economic landscape and the policy responses that may be appropriate. While the continuity view stresses the reliability of traditional policy benchmarks, the newenvironment view suggests that it may be worth considering assigning greater weight to the build-up of financial imbalances when calibrating policy. Such an approach could be consistent with current policy frameworks, but it would point to a somewhat longer horizon for evaluating policy alternatives as well as greater attention to the balance of risks to the outlook.

Keywords: inflation, business fluctuations, monetary stability, financial stability, financial imbalances, monetary policy

JEL Classification: E30, E44, E50

Suggested Citation

Borio, Claudio E.V. and English, William B. and Filardo, Andrew J., A Tale of Two Perspectives: Old or New Challenges for Monetary Policy? (February 2003). BIS Working Paper No. 127, Available at SSRN: https://ssrn.com/abstract=844208 or http://dx.doi.org/10.2139/ssrn.844208

Claudio E.V. Borio (Contact Author)

Bank for International Settlements (BIS) - Research and Policy Analysis ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

William B. English

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-736-5645 (Phone)
202-452-3819 (Fax)

Andrew J. Filardo

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

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