The Low-Interest-Rate Environment, Global Liquidity Spillovers and Challenges for Monetary Policy Ahead
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The impact of global banking on financial stability and the connected post-crisis challenges have been under-researched before the crisis. We interpret ‘global banking’ as ‘global central banking’, focus on the role of international monetary policies and global liquidity for financial stability and identify imponderables emerging in this context. Central banks continue to stress that they will keep interest rates low for a prolonged period, in spite of negative side effects such as deferred bank balance sheet repair. We show that it is crucial to cope with these challenges to return to and ensure global financial stability in the future.
Keywordsglobal liquidity central banks and their policies financial repression financial stability low interest rates
JEL ClassificationsE58 F33 G22 G23
This paper is based on an internal briefing paper prepared by the author for presentation at the Committee on Economic and Monetary Affairs of the European Parliament for the quarterly dialogue with the President of the European Central Bank, February 2013, in Brussels. The authors are grateful for valuable comments received from Paul Wachtel and other participants at the 2012 Symposium ‘Global Banking, Financial Stability, and Post-Crisis Policy Challenges’ in Maastricht, NL.
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