Discussion Topics 1998
Central Banking Seminar
October 19-30, 1998
Topic 1: The Central Bank’s Role in Transition Economies
Focus
For many countries, the move from centrally planned economic systems to market-oriented economies has come in the context of high inflation, declining output and other economic problems. To address these problems while simultaneously attempting to rebuild new economic and financial systems, most transition economies have been obliged to revisit central banking from a fresh perspective. The discussion group will examine key issues regarding the central bank’s role in transition economies: financing the public sector, monetary policy, banking regulation and supervision, and other central bank functions such as, oversight of the financial system and crisis management, payment services for the private and public sectors, and the role in expanding/developing the financial sector. Case studies will be used to address why some countries have been more successful than others in building a market-based financial system. Reforms in other parts of the economy, pre-existing institutions, and administrative capacity all appear to play a part.
Recommended readings
Guidelines for Reforming Finance, DECnotes No. 4, March 1996. The World Bank.
Building a Financial System, World Development Report 1996, Oxford University Press.
Ten Years of Transition: A Progress Report, Finance & Development, September 1998.
Topic 2: Globalization and its Effects on Local Economies
Focus
One of the most striking and ubiquitous trends in the world today is globalization--the increasing integration of nations into a global economic system. Most economists agree that globalization has both large benefits and substantial costs. The group will discuss the first three chapters of the book, Has Globalization Gone Too Far? by Professor Dani Rodrik of Harvard University. Professor Rodrik reviews the cases for and against globalization, and suggests practical policy responses to mitigate the negative side effects of this trend. The group will use Rodrik's book as a starting point for examining globalization and its consequences, including: the growth in world trade and foreign investment, the effects of globalization on national labor markets, globalization and social policy, and volatility and risk.
Recommended reading
Rodrik, Dani. 1997. Has Globalization Gone Too Far? Institute for International Economics, ch. 1-3.
Topic 3: Implications of Increased Capital Flows to Emerging Markets
Focus
Private capital continues to flow to many emerging economies at a historically rapid pace, offering recipient countries an opportunity to achieve higher living standards and faster growth rates. But large-scale capital flows also pose considerable macroeconomic and prudential challenges for recipient countries, and more generally for the world economy. Mexico and Thailand’s financial crises and their spillover effects, actual and potential, to other economies highlight the range of risks and challenges involved. The discussion group will review the broad range of issues concerning capital flows to emerging markets, with emphasis on the causes and consequences of increased capital flows during the 1990s, and the pros and cons of various policy responses--actual or proposed--to address the challenges posed by capital flows.
Recommended readings
Choe, Hyuk, Kho, Bong-Chan and Rene M. Stulz. 1998. "Do Foreign Investors Destablize Stock Markets? The Korean Experience in 1997." NBER Working Paper no. 6661.
Johnston, Barry R., Darbar, Salim M., and Claudia Echeverria. 1997. "Sequencing Capital Account Liberalization: Lessons from the Experiences in Chile, Indonesia, Korea, and Thailand." IMF Working Paper WP/47/157. On Nouriel Roubini’s Asian Crises Homepage
Hanson, James A. 1996. "An Open Capital Account: A Brief Survey of the Issues and the Results." In Financial Reform: Theory and Experience, eds. Gerard Caprio, Jr., Izak Atiyas and James A. Hanson, Cambridge University Press, New York.
Reinhart, Carmen M. and R. Todd Smith. 1997. "Temporary Capital Controls." Mimeo. On Nouriel Roubini’s Asian Crises Homepage
Reinhart, Carmen M. and R. Todd Smith. 1997. "Too Much of a Good Thing: The Macroeconomic Effects of Taxing Capital Inflows." Mimeo. On Nouriel Roubini’s Asian Crises Homepage
Valdes-Prieto, Salvador. 1996. "Financial Liberalization and the Capital Account: Chile, 1974-84." In Financial Reform: Theory and Experience, eds. Gerard Caprio, Jr., Izak Atiyas and James A. Hanson, Cambridge University Press, New York.
Topic 4: The Central Bank’s Role in Banking Supervision
Focus
The central banks’ involvement in banking regulation and supervision has increasingly become the subject of debate and controversy. Looking across countries, the role of central banks in supervisory arrangements differs markedly and does not offer a unique or uniform solution for the issues involved. This discussion group will undertake a wide-ranging examination of the relevant issues, among which are:
- The rationale for central banks’ involvement in banking supervision
- Benefits to monetary policy making and crisis management from fulfilling supervisory tasks
- Safety and soundness of the financial system are closely tied to macroeconomic performance and general economic stability
- Central bank as the ultimate source of liquidity: discount window
- Recent periods of stress in the banking system
- The case against central banks’ involvement in banking supervision
- Distraction from monetary policy--the main function
- Avenue for political interference in monetary policy making
- Evidence from comparisons of macroeconomic performance across countries
- Alternative arrangements for assisting failing banks and protecting depositors
- Linkages between banking supervision and other explicit or implicit responsibilities of central banks:
- Monetary policy
- Oversight of the payments system
- Oversight of financial markets
- Administration of the discount window (lender of last resort)
- Implications of the globalization of finance for central banks’ role in supervision.
- Implications of technological and financial innovation for central banks’ supervisory role. The potential obsolescence of bank loans and deposits in countries with highly developed financial markets due to the growing prevalence of securitization, commercial paper, securities, and mutual funds.
Recommended readings
Deane, M. and Pringle, R. 1994. "The Nightmare of Supervision," The Central Banks, Viking Penguin, ch. 10.
Heller, H.R. 1991. "Prudential Supervision and Monetary Policy," Downes, P. and Vaez-Zadeh, R. eds., The Evolving Role of Central Banks.
Greenspan, Alan. 1994. "The Views of the Board of Governors of the Federal Reserve System on the Consolidation of Bank Supervision and Regulation," March.
