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Conference summary from "Financial market developments and their implications for monetary policy"

  • Economics


Conference summary, April 2008 BIS Papers No 39 1 Conference summary The conference sought to address four questions: What are the most important recent developments in the financial landscape? What has been, or is likely to be, the impact of these developments on the formulation of monetary policy? On the conduct of monetary policy? How useful are financial market indicators for monetary policy? The eight presentations given during the conference were organized into four sessions, with each session addressing one of these questions. This overview summarizes the conference papers and distils some tentative answers to the questions raised. Key developments in the financial landscape The conference began with the session aiming to identify the key recent developments in the financial landscape. In this session, Gudmundsson focused on the key developments in financial globalization. Taking a longer-term view of the issue, he evaluated the effects of financial globalization on the channels of monetary policy transmission and the possible problems and challenges that arise in the context of small open economies. Fitzsimmons, on the other hand, taking a more near-term view of the issue, analyzed the recent developments in global markets and their implications for markets in general and for exchange rates and capital flows in particular. In his paper, Gudmundsson focuses on financial globalization as one of the key recent financial developments. He argues that while significant progress in financial globalization has been evident in the last decade and a half, a world of full integration has yet to be fully realized. Full financial globalization would imply that the real risk adjusted yield curve would eventually be equalized across countries. In this environment, the monetary policy of a small or medium-sized economy would be completely determined by global interest rates, therefore limiting the effect of domestic interest rates on domestic demand. Nevert

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