International monetary policy interactions: challenges and prospects

Speech by Jaime Caruana, General Manager of the Bank for International Settlements, to the CEMLA-SEACEN conference on "The role of central banks in macroeconomic and financial stability: the challenges in an uncertain and volatile world", Punta del Este, Uruguay, 16 November 2012.

Systematic incorporation of spillovers is an essential but missing aspect of most monetary policy decision-making processes. The policy influences that need to be taken into account involve short-term policy rates, long-term bond yields, exchange rates and asset prices on the one hand, and quantities, especially capital flows, on the other. The result of ignoring policy interactions has been that global policy interest rates have tended to fall too low when the major countries and currency areas implement accommodative monetary policies.