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JANCPEC held a sub-committee meeting of PEO (Pacific Economic Outlook) Structure group on November 18, 2011 in Osaka, Japan to discuss the new theme, "monetary policy regime."
As the coordinator of the project, Professor Akira Kohsaka invited the committee members to think about the current state of global economy and what needs to be done to strengthen it. Debates on discretionary versus inflation targeting monetary policies followed. In advanced economies, rule-based monetary policies represented by inflation targeting have been pursued. However, they failed to prevent the global asset market bubble bursts. In the case of emerging economies, by abandoning virtual dollar peg exchange rate systems, they were advised to adopt another nominal anchor, i.e. inflation targeting policies with flexible exchange rates and freer capital movement.
The following points were asked:
- The current economic crisis has seriously affected domestic financial systems and macroeconomic developments in the region; how effective have the policies been so far?
- Do we need to change the framework of monetary policy management in terms of their independence, exchange rate stability, and capital mobility?
- What could be done to strengthen the regional financial cooperation?
Dr. Peter Morgan (Senior Consultant for Research, Asia Development Bank Institute) was invited as a special speaker. He said that the Asian monetary policy responses were reasonably successful in dealing with the financial crisis but that financial stability needs to be better incorporated in the monetary framework. He said that capital flow management requires a multi-tier approach:
- Structural: financial and institutional/ regulatory development and capital outflow liberalization in the longer term
- Macroeconomic: sterilized intervention, monetary easing, fiscal tightening and exchange rate flexibility
- Macroprudential policy: domestic macroprudential measures and capital inflow controls for the trilemma
Dr. Morgan also added that we need to strengthen regional financial and monetary cooperation such as the Chiang Mai Initiative and by coordinating capital inflow controls, and exchange rate policies.
The next PEO Structure group specialist meeting will be held in March 2012 in Osaka, Japan.