Monetary policy flexibility, risk management, and financial disruptions

Frederic Mishkin

Journal of Asian Economics, 2010, vol. 21, issue 3, 242-246

Abstract: This paper argues that the monetary policy that is appropriate during an episode of financial market disruption is likely to be quite different than in times of normal market functioning. When financial markets experience a significant disruption, a systematic approach to risk management requires policymakers to be preemptive in responding to the macroeconomic implications of incoming financial market information, and decisive actions may be required to reduce the likelihood of an adverse feedback loop. The central bank also needs to exhibit flexibility--that is, less inertia and gradualism than would otherwise be typical--not only in moving decisively to reduce downside risks arising from a financial market disruption, but also in being prepared to take back some of that insurance in response to a recovery in financial markets or an upward shift in inflation risks.

Keywords: Monetary; policy; Risk; management; Financial; crisis; Gradualism; Adverse; feedback; loop (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1049-0078(09)00063-3
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:21:y:2010:i:3:p:242-246

Access Statistics for this article

Journal of Asian Economics is currently edited by C. Wiemer

More articles in Journal of Asian Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().