Search

The Great Financial Crisis has triggered much soul-searching within the economic profession and the policymaking community. The crisis shattered the notion that price stability would guarantee macroeconomic stability: financial markets [...]

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1467-9957.2010.02199.x Byline: CLAUDIO BORIO (1), PITI DISYATAT (1) Abstract: This paper sets out a framework for classifying and thinking about unconventional monetary policies, highlighting how they can be viewed within the overall context of monetary policy implementation. The framework clarifies the differences among the various forms of unconventional monetary policy, provides a systematic characterization of the wide range of central bank responses to the recent crisis, helps to underscore the channels of transmission and identifies some of the main policy challenges. In the process, the paper also addresses a number of contentious analytical issues, notably the role of bank reserves and their inflationary consequences. Author Affiliation: (1)Monetary and Economic Department, Bank for International Settlements

This paper investigates how monetary policy affects bank profitability. We use data for 109 large international banks headquartered in 14 major advanced economies for the period 1995-2012. Overall, we find a positive relationship between the level of short-term rates and the slope of the yield curve (the 'interest rate structure', for short), on the one hand, and bank profitability - return on assets - on the other. This suggests that the positive impact of the interest rate structure on net interest income dominates the negative one on loan loss provisions and on non-interest income. We also find that the effect is stronger when the interest rate level is lower and the slope less steep, that is, when non-linearities are present. All this suggests that, over time, unusually low interest rates and an unusually flat term structure erode bank profitability. [ABSTRACT FROM AUTHOR]

The paper deals with three different areas of the financial sphere: national moneys, exchange rates and financial claims, markets and institutions. For each of them, it tries to identify the main forms of 'instability' which may occur, their causes and consequences for the real economy. Depending on the area concerned, the forms of 'instability' include inflation, fluctuations and misalignments in interest rates, exchange rates and asset prices and finally solvency and liquidity crises of institutions. It is concluded that, over the last fifteen years, significant progress has been made in the policy framework to counteract instabilities in the national and monetary spheres. The conclusion is more mixed with regard to the structure of financial markets. [ABSTRACT FROM AUTHOR]