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สถาบันวิจัยเศรษฐกิจป๋วย อึ๊งภากรณ์
Puey Ungphakorn
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Call for Papers: PIER Research Workshop 2025
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Discussion Paperdp
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20 December 2018
20181545264000000
No. 100

Integrating Monetary Policy and Financial Stability: A New Framework

Abstract

Since the aftermath of the Global Financial Crisis during 2007–2008, financial stability (FS) has become top priority for central banks around the world. The conduct of monetary policy (MP) sees no exception. By leveraging on the existing literature, we propose a systematic approach to incorporate FS considerations into MP framework. This starts with calculating a financial cycle (FC) which is a measure of financial imbalances and a predictor of financial crises. We then look at an FS dashboard which consolidates pockets of risks facing the financial sector, and show how it may be used in FS surveillance. Next, we discuss the concept of model development and introduce an example of a model platform to facilitate MP formulation. Nevertheless, when implementing MP to address FS risks, policymakers encounter an inter-temporal trade-off between financial and price stability. A key challenge towards MP decision-making is, therefore, to strike a balance between both mandates by designing the appropriate policy mix between monetary and macroprudential policies. As a demonstration of our approach, we discuss, in each section, an on-going attempt at the Bank of Thailand to systematically incorporate FS into flexible inflation targeting.

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JEL: E52G01C54
Tags: monetary policy frameworkfinancial stabilitypolicy trade-off
The views expressed in this workshop do not necessarily reflect the views of the Puey Ungphakorn Institute for Economic Research or the Bank of Thailand.
Warapong Wongwachara
Warapong Wongwachara
Kiatnakin Phatra Financial Group
Bovonvich Jindarak
Bovonvich Jindarak
Bank of Thailand
Nuwat Nookhwun
Nuwat Nookhwun
Puey Ungphakorn Institute for Economic Research
Sophon Tunyavetchakit
Sophon Tunyavetchakit
Bank of Thailand
Chutipha Klungjaturavet
Chutipha Klungjaturavet
Bank of Thailand

Puey Ungphakorn Institute for Economic Research

273 Samsen Rd, Phra Nakhon, Bangkok 10200

Phone: 0-2283-6066

Email: pier@bot.or.th

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