Санкт-Петербургский саммит «Группы 20»

Price and Financial Stability in Modern Central Banking José De Gregorio (bio) Although the first central banks were created more than three hundred years ago, it was not until the mid-nineteenth century that central banks were given the monopoly power to issue banknotes and to act as lender of last resort. Thereafter, central banks played the role of liquidity provider and lender of last resort. These tasks were intended to allow a proper functioning of the payment system, so financial stability was implicitly a major concern for central banks. Over time, central banks moved toward achieving price stability, from monetary stability to controlling inflation. Financial stability became a secondary goal, if a goal at all. This has not been the case in emerging market economies, which have been affected by recurrent financial crises. Indeed, financial crises like those of Chile in the early 1980s or in Mexico and Asian countries in the 1990s are not radically different from the recent crisis in advanced economies. The complexity may have changed, but the original causes had many similarities.1 Some years ago it was much more frequent to find central bankers concerned about financial stability in emerging countries than in advanced ones. However, as a consequence of the global financial crisis, the issue of financial stability has reemerged as a top priority for policymakers. In this paper, I discuss the issue of price and financial stability in central banking. I first explore the conduct of central banks in achieving price stability, in particular in the context of inflation targeting, and then move on to how the financial stability mandate has to be included as a key component of modern central banking. I end with a few concluding remarks. [End Page 1] Central Banks and Price Stability As mentioned above, central banks in advanced economies have long been focused mainly on ensuring low inflation. Moreover, some scholars and practitioners argued that price stability should be the only objective of central banks, so that the goal would be more credible and monetary policy more effective in achieving stability. How exactly or operationally to achieve this target was an open question, however. Some central banks tried to target monetary aggregates, others to peg nominal exchange rates, and others to use an eclectic mix of indicators. Two decades ago, some central banks started conducting monetary policy targeting a specific value or range for the inflation rate. This trend started with New Zealand in 1990 and was followed by Canada, the United Kingdom, Australia, and Sweden in the early 1990s. This is a case in which policy development led academic advances. Progress on the academic front provided further impetus to the adoption of inflation targets as new models were developed to provide the theoretical underpinnings of inflation targets and the basis to conduct empirical work.2 This view was further justified by the success of monetary policy around the world in providing stability, not only on the inflation front, but also in activity and employment. The evidence that output volatility declined significantly in the United States after the mid-1980s was first reported by Kim and Nelson and later called the Great Moderation by Stock and Watson.3 Several factors could be behind this trend, such as technical progress, better policies, deeper financial markets, and sheer good luck. Although there is no final verdict, evidence points to the role of better macroeconomic policies.4 Emerging market economies also enjoyed a Great Moderation, but it came in the second half of the 1990s, much later than in developed economies. This coincided with the time in which inflation was conquered, supporting the hypothesis that it was good policies rather than good luck.5 It is easy to discredit the Great Moderation in the current juncture. However, the resilience of emerging market economies to the global crisis was impressive. Indeed, emerging markets had a recession, but much milder than in the past and with a remarkable recovery. This was, of course, the consequence of much better macroeconomic management. [End Page 2] The case of Chile illustrates this point. The economy did suffer a recession, but the size of the initial impact and the speed of the recovery were quite...

Quantitative Aspects of the Economic Growth of Nations: VIII. Distribution of Income by Size

In many economies the major role of government is the regulation and stabilization of the system in other to achieve macroeconomic objectives, which include but not limited to sustainable economic growth, full employment, and price stability. Monetary and fiscal policies have been considered as viable economic planning strategies for achieving the stated macroeconomic objectives. But the extent to which each is to be used to achieve the desired objectives is a matter of intense debate among policy makers and economists. This study is on monetary-fiscal policy coordination and economic growth sustainability in Nigeria. The objective is to examine the contributions of monetary and fiscal policies to economic growth in Nigeria and how their coordination has affected the economy towards growth recovery and sustainability. Unit root test, co integration test, Auto Regressive Distribution Lag (ARDL) model and trend analysis were some of the econometric techniques used for data estimation. The following variables were used as explanatory variables – Money Supply (MS), Monetary Policy Rate (MPR), Total Government Expenditure (TEXP) and Tax Revenue (TXREV), while the dependent variable is Real Gross Domestic Product (RGDP) proxy of economic growth. The data were sourced from Central Bank of Nigeria (CBN) statistical bulletin covering the period of 37 years. The result of the st stationarity test showed that all the independent variables were stationary at 1 difference while the dependent variable was stationary at level form. The Bound test proved that there was the existence of long run equilibrium relationship among the variables. The result from the short run analysis showed that TXREV was significant in one period lag and negatively related to RGDP. In the long run MPR and MS have significant impact on RGDP and were rightly signed. The combined effect of monetary and fiscal policies on the level of economic growth in Nigeria is found to be weak and unstable over the years of study, which indicates weak long-run relationship between the explanatory variables and the dependent variable. It is therefore necessary to establish an appropriate framework to intensify coordination between monetary and fiscal policies as tools for economic stabilization. However increased autonomy of the Central bank and the Debt management office may help realize the desired objective.

Monetary policy is a prominent stabilization mechanism often used to accomplish price and economic stability in a country. The success of monetary policy depends on the operating economic environment, the institutional framework adopted, and the choice and mix of the instruments used. The aim of this paper was to review the evolution of the monetary policy framework in Sri Lanka and its impact on the financial sector. The review is important, and monetary policy is intended to impact aggregate spending in the economy to contribute to the goals of full employment, price stability, sustainable economic growth, and balance of payments equilibrium. The paper reviewed more than twenty-five research and review papers using a thematic approach. The paper explains the historical evolution of monetary policy regimes in Sri Lanka and the reasons for adopting various monetary and exchange rate policy regimes from time to time. The review considers national and international studies on monetary policy regimes and their impact on the financial system. The paper concludes that the Currency Board could not influence the money supply in any way, and until the adoption of open economy policies in 1977 under the fixed exchange rate regimes, the Central Bank had no control over domestic inflation. The review also identifies that flexible inflation targeting is the international best practice of Central Banking, and flexible inflation targeting enables the maintenance of low inflation, thereby helping economies achieve a high and stable growth path. However, it emphasizes that it should be maintained sustainably subject to several conditions through government intervention.

Price stability and sustainable economic growth are conventionally considered as key goals of monetary policy. Financial stability is also recognized as the third pillar in the monetary policy objective function after the financial crisis of 2007. Although financial stability “as the third target in the monetary policy objective functions” is evidently inconsistent with the twin conventional monetary policy goals, it mitigates the side effects of financial turmoil impact on the price and growth instability in the macrocosmic environment in the medium term. Financial crises, which have historically created large deviations in the monetary policy goals, necessitate empowering the conventional policy instruments (policy interest rate, monetary aggregate and rate of requirement ratio) with unconventional policy instruments. In this context, unconventional supplementary monetary policy instruments streamline monetary transmission mechanism to achieve asymmetrically triple monetary policy goals through expanding open market operations to non-governmental bonds, facilitating banks’ overnight financing in the payment system, and initiating zero bound interest rate policy. In this research, a Dynamic Stochastic General Equilibrium Model (DSGE-Gertler and Karadi, 2011) is technically utilized to estimate the impact of conventional (interest rate) and unconventional (credit lines) monetary policy instruments on the macroeconomic variables (inflation, output growth, exchange rate and stock market price index), while simulating the macroeconomic variables response to financial instability. The simulation evaluates monetary policy impulse response function based on optimization approach in the context of crisis scenario. Monetary policy rules basically assessed in this paper are introduced in the context of optimization and non-optimization, which include Taylor interest rate rule without financial stability, simple optimization interest rate rule with financial stability, and unconventional monetary policy rule. In this context, Central banks’ line of credits as unconventional tool, which is influenced by the policy maker decisions, injects directly to banking network flow of funds. Central banks, which had sold the public bonds to the families in the form of risk-free investment in the first step, accumulate financial resources in the balance sheet. Accumulated financial resources lend simultaneously to the firms in the second step in the context of unconventional expansionary monetary policy in order to increase banking network leverage ratio, which streamlines credit operations and develops private sector investment. Presumably, central bank intervention is empirically considered inefficient compared to the private sector in the financial intermediaries due to CBs cost inefficiency to find and allocate to the key economic sectors. The DSGE parameters are statistically estimated by the Bayesian approach through using time series for some macroeconomic variables including consumption, private investment, inflation, government expenditure, change in outstanding loan, commercial banks leverage ratio, and stock market return. Given the fact that the Bayesian estimation is technically required to introduce the distribution of parameters as priors, priors are determined through numerical analysis as well as through previous research. The estimation log data density mounted at about 399 and the robustness of estimated parameters has been verified based on test of Brooks and Gelman (1988). In this study, rapid reduction in the quality of capital is considered financial crises shock indicator which influence key macroeconomic variables. Simulation results indicate that unconventional monetary policy affects efficiently real sector sustainability while mitigating financial instability (assets market) in the macroeconomic environment. In this regard, financial stability is evidently accompanied by the lower nominal interest rate and inflation in line with Gertler and Karadi (2011). In other words, although unconventional rather than conventional monetary policy instruments were limitedly utilized amid financial turmoil in Iranian economy, they create sustainable growth along with lower interest rate and inflation in the medium term accompanied by higher household welfare. Utilization of unconventional monetary policy instruments diversifies policy tools and reduces the deviation of conventional policy instruments and target variables (price, output growth and financial stability) in the Iran macroeconomic environment.

Although the first central banks were created more than three hundred years ago, it was not until the mid-nineteenth century that central banks were given the monopoly power to issue banknotes and to act as lender of last resort. Thereafter, central banks played the role of liquidity provider and lender of last resort. These tasks were intended to allow a proper functioning of the payment system, so financial stability was implicitly a major concern for central banks. Over time, central banks moved toward achieving price stability, from monetary stability to controlling inflation. Financial stability became a secondary goal, if a goal at all.This has not been the case in emerging market economies, which have been affected by recurrent financial crises. Indeed, financial crises like those of Chile in the early 1980s or in Mexico and Asian countries in the 1990s are not radically different from the recent crisis in advanced economies. The complexity may have changed, but the original causes had many similarities.1 Some years ago it was much more frequent to find central bankers concerned about financial stability in emerging countries than in advanced ones. However, as a consequence of the global financial crisis, the issue of financial stability has reemerged as a top priority for policymakers.In this paper, I discuss the issue of price and financial stability in central banking. I first explore the conduct of central banks in achieving price stability, in particular in the context of inflation targeting, and then move on to how the financial stability mandate has to be included as a key component of modern central banking. I end with a few concluding remarks.Central Banks and Price StabilityAs mentioned above, central banks in advanced economies have long been focused mainly on ensuring low inflation. Moreover, some scholars and practitioners argued that price stability should be the only objective of central banks, so that the goal would be more credible and monetary policy more effective in achieving stability. How exactly or operationally to achieve this target was an open question, however. Some central banks tried to target monetary aggregates, others to peg nominal exchange rates, and others to use an eclectic mix of indicators. Two decades ago, some central banks started conducting monetary policy targeting a specific value or range for the inflation rate. This trend started with New Zealand in 1990 and was followed by Canada, the United Kingdom, Australia, and Sweden in the early 1990s. This is a case in which policy development led academic advances. Progress on the academic front provided further impetus to the adoption of inflation targets as new models were developed to provide the theoretical underpinnings of inflation targets and the basis to conduct empirical work.2This view was further justified by the success of monetary policy around the world in providing stability, not only on the inflation front, but also in activity and employment. The evidence that output volatility declined significantly in the United States after the mid-1980s was first reported by Kim and Nelson and later called the Great Moderation by Stock and Watson.3 Several factors could be behind this trend, such as technical progress, better policies, deeper financial markets, and sheer good luck. Although there is no final verdict, evidence points to the role of better macroeconomic policies.4 Emerging market economies also enjoyed a Great Moderation, but it came in the second half of the 1990s, much later than in developed economies. This coincided with the time in which inflation was conquered, supporting the hypothesis that it was good policies rather than good luck.5 It is easy to discredit the Great Moderation in the current juncture. However, the resilience of emerging market economies to the global crisis was impressive. Indeed, emerging markets had a recession, but much milder than in the past and with a remarkable recovery. …

This paper examined the nexus of macroeconomic policy (monetary and fiscal policies), investment and economic growth. The findings established that monetary and fiscal policies affect aggregate investment and economic growth in Nigeria. It also showed that the management of monetary and fiscal policies in Nigeria has not yet achieved macroeconomic stability objective. The implementation of the monetary policy, in particular, has not helped to stimulate savings and ensure it's efficient allocation for investment purposes, hence appropriate rate of investment and sustained economic growth has eluded the country. For a sustainable macroeconomic policy that will engender appropriate rate of investment and sustained economic growth, this paper therefore, recommends harmonious working relationship between monetary and fiscal authorities, effective coordination and harmonization of monetary and fiscal policies, monetary policies should focus on lowering interest rates and increasing availability of credits to productive sectors of the economy. Furthermore, the monetary authorities should strongly discourage exploitative tendencies and unethical practices of banks, banks should avoid sharp and unscrupulous practices and discipline themselves to play according to the rules of the game as well as effectively carry out their financial intermediation role.

This paper studies the inflationary dynamics that permeated the Indian economic landscape in the post-COVID-19 era, and the subsequent monetary tightening implemented by the Reserve Bank of India (RBI). The expeditious economic resurgence—catalyzed by robust governmental fiscal stimulus, accessible credit facilities, and augmented monetary liquidity—precipitated substantial upward pressures on the price level. These endogenous factors were further exacerbated by exogenous variables, including global supply chain perturbations and elevated commodity valuations. In response to these macroeconomic exigencies, the RBI pivoted from its accommodative monetary stance toward a more restrictive policy framework, employing repo rate adjustments as the principal mechanism for inflation mitigation and economic stabilization. The multifaceted etiology of inflationary pressures—encompassing expanded monetary aggregates, heightened fiscal imbalances, and reinvigorated aggregate demand—constitutes a focal point of this analytical discourse. Furthermore, the paper undertakes a comprehensive evaluation of the RBI’s policy instruments, including strategic repo rate elevations, credit expansion governance, and liquidity management protocols, all orchestrated to achieve the delicate equilibrium between price stability and sustained economic growth. The ramifications of monetary tightening are extensively examined, particularly its consequential impact on credit proliferation, consumption patterns, capital formation, and financial market dynamics. The concluding segment of this treatise elucidates the policy implications inherent in inflation management and monetary contraction, emphasizing the imperative for structural economic reforms, balanced growth paradigms, and synchronized monetary-fiscal policy frameworks. This comprehensive review endeavors to provide an erudite examination of the economics of inflation and monetary tightening within the Indian context, contributing to the broader discourse on establishing efficacious inflation control mechanisms in emerging market economies.

Empirical investigation on the comparative potency of monetary and fiscal policies is still dubious among two major schools of thought in economics so called classical and Keynesian. Hence, this paper investigates the relative effectiveness of monetary and fiscal policies in affecting economic growth by employing Auto-Regressive Distributive Lag Model (ARDL) for the time spanning from 1975 to 2017. The proxies used in this study for monetary and fiscal policy were Broad money supply (M2) and government consumption expenditure respectively while real GDP at constant prices in 2010 is used as proxy for economic growth in Ethiopia. Anderson and Jordan (1968) “St. Louis equation’’ has been used to estimate the comparative potency of monetary and fiscal policies. The empirical results indicate that both the monetary and fiscal policies have equal statistically significant and positive impact on economic growth in Ethiopia with different significance level and magnitude. Besides of equal effectiveness, the elasticity of real output with respect to fiscal policy variable is greater than the elasticity with respect to money supply which show fiscal policy is more effective than monetary policy in influencing Real GDP in the long-run. However, in the short run, the fiscal policy is effective while that of the monetary policy proxy by money supply is ineffective in affecting output growth in Ethiopia. Therefore, to have continuous and sustainable economic growth, the coordination of monetary and fiscal policies are vital and the lack of this coordination leads to a sharp downturn of overall economic performance, even can hurt the economy.

Economic growth is regarded as one of the key determinants which is utilized by developed and developing countries to measure economic activities success through Gross Domestic Product (GDP). The purpose of this study was to investigate the effects of monetary policy and price stability on the economic growth of South Africa from 1997 to 2023. South Africa is failing to meet its inflation goals, for instance, in the last decade it missed five times of opportunities, which raises concerns about the efficiency of using inflation targeting as a monetary policy framework to achieve price stability and sustainable economic growth. Time series data was used, sourced from the World Bank data platform. The autoregressive distributed lag (ARDL) technique was used based on the unit root test outcomes which display a mixture of I (0) and I (1) on variables. The findings showed that money supply, inflation, and exchange rate are negatively related to GDP growth while interest rate reveals a positive influence towards economic growth in the long run. This study has contributed to the academic literature by providing an in-depth analysis of how different aspects of monetary policy, specifically money supply and interest rates affect economic growth in South Africa.

Monetary policy is a key instrument in maintaining a country's economic stability. An imbalance between the money supply and inflation can negatively impact economic growth, purchasing power, and price stability. This study analyzes the role of monetary policy in controlling inflation and money supply to promote stable and sustainable economic growth. The study employs a qualitative approach by analyzing secondary data from central bank reports, previous research, and relevant macroeconomic data. The findings indicate that monetary policy instruments, such as interest rates, open market operations, and reserve requirements, are effective in curbing inflation while maintaining economic growth. However, the effectiveness of these policies depends on global economic conditions and the real sector's response to monetary policy changes. Therefore, a flexible and data-driven policy is required to adapt to economic dynamics. These findings provide implications for policymakers in designing more adaptive monetary strategies to achieve long-term economic stability.

This study explores the intricate relationships between monetary policy, inflation rates, and foreign direct investment (FDI) and their collective impact on economic growth in developing countries. Utilizing a comprehensive review of existing literature, this research aims to provide a nuanced understanding of how these macroeconomic factors interact to influence economic development. Monetary policy, often implemented through adjustments in interest rates and money supply, is critical in shaping economic stability and growth. The study reveals that effective monetary policy in developing countries can stimulate economic activity by fostering an environment conducive to investment and consumption. However, the impact of such policies is contingent upon the stability and credibility of the governing institutions, which are often variable in developing regions. Inflation rates, which reflect the general rise in price levels, were found to have a complex relationship with economic growth. Moderate inflation can stimulate spending and investment by reducing the real burden of debt and encouraging consumption. In contrast, high inflation can erode purchasing power and deter both domestic and foreign investment, thereby stifling growth. This study underscores the importance of maintaining inflation within a manageable range to support sustainable economic growth. Foreign direct investment is identified as a key driver of economic development, providing capital, technology transfer, and employment opportunities. The research highlights that FDI can significantly enhance economic growth by supplementing domestic capital, improving infrastructure, and fostering industrial diversification. However, the benefits of FDI are maximized when complemented by stable economic policies and a favorable investment climate. In conclusion, the interplay between monetary policy, inflation, and FDI is crucial in shaping the economic trajectories of developing countries. The study suggests that balanced and coherent policy frameworks are essential to harnessing these factors for sustained economic growth. Future research should explore country-specific dynamics to better understand the differential impacts across various developing economies.

Abstract, Fiscal and monetary policies have an important role in sustainable economic growth in Indonesia. This research aims to evaluate the effectiveness of fiscal and monetary policies in achieving sustainable economic growth. The research method applied is descriptive analysis using secondary data obtained from various trusted sources. The research results show that fiscal policy, which includes budget regulation, taxes and subsidies, has made a positive contribution to economic growth. However, efforts are still needed to improve the efficiency of budget management and transparency in the use of public funds. Meanwhile, monetary policy, which includes setting interest rates and the money supply, also has a significant impact on economic growth. However, the need to balance price stability and economic growth remains a challenge. In conclusion, to achieve sustainable economic growth, close coordination between fiscal and monetary policies is needed. In addition, comprehensive structural reforms and increasing institutional capacity are very important to create a supportive environment to ensure sustainable economic growth in Indonesia.

This study investigated the impact of the people category of the Sustainable Development Goals (SDGs) on sustainable and conventional economic growth in Asia and the Pacific region, using a sample of 52 selected countries between 2000 and 2023. Employing two distinct models, model A1 for conventional economic growth and model A2 for sustainable economic growth, we explained the relationships between five SDG indicators: employed poverty rate, stunted children, expenditure on health, expenditure of education, and % of women MNAs on economic growth. This study employed a fixed-effect model and random-effect model to investigate the impact of the people category SDGs on traditional and sustainable economic growth. The comparative analysis of each SDG in both models revealed valuable insights. SDG 1, “employed poverty rate”, has a positive impact on economic growth in both models, while SDG 2, “percentage of stunted child”, did not significantly influence economic growth in either model. Moreover, SDG 3 and SDG 4, relating to “government’s health expenditure per capita” and “government’s Education education expenditure per capita”, respectively, exhibited a positive impact on traditional and sustainable economic growth. Conversely, SDG 5, “percentage of women members of national parliament”, displayed an insignificant impact on traditional and sustainable economic growth models. In conclusion, this study suggests that policymakers should prioritize targeted interventions to alleviate employed poverty, enhance healthcare, and boost education spending. Moreover, promoting women’s representation in national parliaments should be approached with context-specific strategies to maximize its impact on economic growth.

The purpose of this paper is to investigate the relative effect of monetary policy and fiscal policy on economic growth in Ethiopia. The paper employed annual time series data from a period of 2009 to 2019. The paper performed Augmented Dickey-Fuller test for unit root, Johansson test of co-integration and Ordinary Least Squares estimation technique to analyze the data. The findings revealed that monetary policy proxy by interest rate has significantly a negative effect on the Ethiopian economic output. Likewise, the study found that fiscal policy proxy by government expenditure has significantly and positively influenced the economic growth (GDP) in Ethiopia. Finally, the study exposed that fiscal policy is somewhat influential than monetary policy in altering economic growth of Ethiopia. The study suggested that both fiscal and monetary policies should be implemented simultaneously to ensure macroeconomic stability and sustainable economic growth in Ethiopia. It is also recommended that government annual budget and projects implementation should be monitored adequately to ensure price stability, full employment, and economic growth. Monetary policies implemented by the National Bank of Ethiopia should promote conducive investment atmosphere through appropriate stabilization of interest rates, and inflation rates to promote economic growth of the country. DOI: 10.7176/PPAR/10-11-01 Publication date: November 30 th 2020