390017 SE PhD-E: Challenges in the Implementation of Monetary Policy after the Financial Crisis (2016S)

The recent global crisis has changed the nature of monetary transmission in many ways. Before the crisis, central banks in advanced economies were focused on achieving price stability using short-term interest rates to guide inflation to its target; this approach was grounded in New Keynesian models with little reference to financial markets. Since the crisis they have used a wider range of instruments, addressed additional targets for financial as well as price stability, and have developed theoretical models with a greater role for financial intermediaries and markets. Practically speaking, short-term interest rates have been at the effective zero lower bound since 2008 in most countries, and asset purchases have become the main tool of policy; long term interest rates and inflation are very low.
There are major implications from these developments for advanced and emerging economies. Operating procedures have been changed to deal with low short term rates, central banks have developed unconventional monetary policy tools to implement policy further along the yield curve, and countries have to cope with the effects of financial spillovers that occur in response to divergent policies. The monetary transmission mechanism depends much more on global factors, and foreign as well as domestic monetary policy influences domestic credit, exchange rates and long-term interest rates. Structural changes have occurred that have spurred a global "search for yield', causing larger capital flows to emerging economies through the 'boom' in cross-border banking and also through expanding financial markets. The aim of the course is to understand these developments.

The course will use lectures, tutorials, Q&A, policy discussions and small group presentations to explore the issues involved. At the end of the course, participants will be able to:
i. Recognize the changes that have taken place in the implementation of monetary policy and liquidity management .
ii. Analyze the implications for financial intermediation and interest rate pass through.
iii. Assess the new monetary policy challenges facing advanced and emerging economies.
iv. Discuss the different perspectives on financial globalization, monetary and financial spillovers, and the consequences for monetary policy.