INTAN PERMATA SARI

014201500121
MGT BF-2
GENERAL BANKING THEORY
Summary Chapter 14: Future Central Banking Strategy and Its Execution
According to Rumelt, strategy can be thought of as strength against weakness. Two
natural sources of strength consist of (1) having a coherent strategy, that is, one that
coordinates policies and actions, and (2) the creation of new strength through subtle
shifts in viewpoint.
For central banks, experience has shown that the pursuit of short-term economic
growth, the interventions that come too late in preventing a financial crisis from
deepening, the pursuit of overly accommodative monetary policy in the face of a
supply shock, the pursuit of the impossible trinity, and a narrow focus on inflation
without regard to the possibility of asset price bubbles are bad central banking
strategies.
In the wake of the 20072010 crisis there has been a rethinking of central banking
strategy, whether in terms of monetary policy or supervisory functions. It is now
recognized that monetary stability and financial stability are inherently intertwined,
and that monetary policy and macroprudential tools might be used together.
To enhance analytical capacity, a central bank might want to ensure that
1. its staff is well versed in technical and practical knowledge of the
macroeconomy, financial institutions, and financial markets.
2. it has access to appropriate data and tools to be used to analyze the
macroeconomy, financial institutions, and financial markets.
To enhance political capacity, a central bank will need to be able to articulate clearly
to stakeholders the tradeoffs and synergies that might occur in the pursuit of its
mandates, so that it can gain support for the effective conduct of its policies.