Interview with London Business School’s Hélène Rey
Interview with the Research Division at Sveriges Riksbank
London Business School’s Professor Hélène Rey was recently interviewed by the newsletter, Research News, part of the Research Division of Sveriges Riksbank, Sweden's central bank
Professor Rey was asked what are the implications of financial globalisation for monetary policy in a small open economy like Sweden?
The Lord Bagri Professor of Economics at London Business School said her research on the international financial and monetary spills over into the monetary policies of Central Banks in large currency areas. “The US Federal Reserve monetary policy in particular has large and global effects due to the international use of the dollar. It contributes to the emergence of a Global Financial Cycle. Countries’ exposure to global financial conditions has an important effect on their ability to conduct an effective independent monetary policy. There is no ‘divine coincidence’ which would guarantee that international financial conditions and domestic monetary authorities’ objectives are aligned.
“As a result, central banks in emerging markets and advanced economies alike may face exuberant international investors at a time where they are trying to tighten monetary policy at home. Conversely, they may be unable to find funding when they are attempting to expand demand domestically. The most appropriate policies to support monetary and financial stability for a small open economy like Sweden seem therefore to complement the existing credible inflation targeting framework with a set of macroprudential policies tailored to the country’s circumstances and institutional and legal framework. A wealth of experience has been acquired in the recent years – including in Sweden – on the effectiveness of different tools (from LTV to DSTI ratios for the real estate market, to the activation of sectoral and countercyclical buffers, etc.). We need to take stock, learn from experiences around the world and integrate monetary policy and macroprudential tools in a single analytical framework. Such a set of complementary policies should help increase the passthrough and effectiveness of monetary policy to the corporate, household and mortgage markets as well as guarantee financial stability as much as possible.”
For the full interview with Sveriges Riksbank, click here
Photograph, copyright Arild Vågen
