Press Release No. 12/136

Press Release: Bank of Korea, BIS and IMF Conclude Joint Conference on Macro-Financial Linkages and Policy Implications

April 16, 2012

The Bank of Korea, the Bank for International Settlements (BIS) and the International Monetary Fund (IMF) held a joint conference on April 10-11 on “Macro-financial linkages: Implications for monetary and financial stability policies”. The event in Seoul, South Korea, brought together central bankers, regulators and researchers to discuss a variety of topics related to interactions between the financial system and the real economy. The goal of the conference was to promote a continuing dialogue on the policy implications of recent research findings.

The conference program included the presentation and discussion of research on banks, shadow banks and the macroeconomy; bank liquidity regulation; macroeconomic impact of regulatory measures; macro-prudential policies in theory and in practice; and monetary policy and financial stability.

Efforts to recast monetary and financial stability policies to reduce the frequency and severity of financial crises have focused attention on the interactions between the financial system and the macroeconomy. The crisis demonstrated that financial system weaknesses can have sudden and long-lasting macroeconomic effects.

The conference concluded with a panel discussion chaired by Stephen Cecchetti, Economic Adviser and Head of the BIS Monetary and Economic Department, and including Jun Il Kim (deputy governor and the chief economist of the Bank of Korea), Jan Brockmeijer (deputy director of the IMF’s Monetary and Capital Markets department), Hiroshi Nakaso (assistant governor of the Bank of Japan), and David Fernandez (managing director and head of Emerging Asia Research at JP Morgan). The panel discussion focused on the lessons or guideposts for the formulation and implementation of macro-prudential and monetary policies that can be drawn from the intensive research efforts on macro-financial issues in recent years, as well as on the empirical evidence on the effectiveness of policy measures. The roundtable also included a discussion of weaknesses in our understanding of macro-financial linkages and touched on priorities for future research, analysis, and continuing cooperation between central banks, regulatory authorities, international organisations and academics.

Introducing the conference, Choongsoo Kim, Governor of the Bank of Korea, said, “Since major countries’ measures to reform financial regulations, including Basel III of the BCBS, focus mostly on the prevention of crisis recurrence, we need to continuously monitor and track how these measures will affect the sustainability of world economic growth in the medium- and long-term. In doing so, we should be careful so that the strengthening of financial regulation does not weaken the benign function of finance, which is to drive the growth of the real economy through seamless financial intermediation. Moreover, in today’s more closely interconnected world economy, the strengthening of financial regulation with a primary focus on advanced countries does not equally affect the financial system in emerging market countries with their significantly different financial structure. Hence, in examining the implementation of regulations, an in-depth analysis should be conducted of how these regulations will affect the financial industries of emerging market countries and all other countries other than the advanced economies and their careful monitoring is called for.

Mr. Cechetti remarked that “It is important that we continue to learn about the mechanisms through which financial regulation helps to stabilize the economic and financial system. We are not only exploring the effectiveness of existing tools, but also working to fashion new ones. Doing this means refining the intellectual framework, including both the theoretical models and empirical analysis, that forms the basis for macro-prudential policy and micro-prudential policy, as well as conventional and unconventional monetary policy. The papers presented and discussed in this conference are part of the foundation of this new and essential stability-oriented policy framework.

The IMF’s Mr. Brockmeijer added that “All the institutions involved in developing macro-prudential policy frameworks are on a learning curve both with regard to monitoring systemic risks and in using tools to limit such risks. In such circumstances, sharing of views and experiences is crucial to identifying best practices and moving up the learning curve quickly. The Fund is eager to help its members in this regard, and the conference co-organised by the Fund is one way to serve this purpose.”