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Globalization, Financial Volatility and Monetary Policy

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Abstract

Recently it has often been claimed that globalization eases the job of central banks as it helps to tame inflation. This is used to argue that central banks (particularly the ECB, referring to the objectives as laid down in the EU Treaty) could or should reduce their efforts in the fight against inflation in favor of supporting the general economic policies of the governments. This paper takes a critical look at this argument, pointing to the structural changes associated with globalization and to the corresponding increase in uncertainty by which the central banks are affected. As an example of this, the increase in financial volatility is analyzed and explained as the result of optimal portfolio allocation, and its implications for monetary policy are discussed.

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  1. Department of Economics, University of Hagen, Universitätsstrasse 41, Germany

    Helmut Wagner & Wolfram Berger

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  1. Helmut Wagner
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  2. Wolfram Berger
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Correspondence to Helmut Wagner.

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Wagner, H., Berger, W. Globalization, Financial Volatility and Monetary Policy. Empirica 31, 163–184 (2004). https://doi.org/10.1007/s10633-004-0915-4

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