Comments by Don Hanna, on Financial Conditions Indexes and Monetary Policy in Asia

Don Hanna: Because of the rise in the relative importance of capital flows and financial development across Asia in the run up to and following the 2008—09 global financial crisis (GFC) and the more recent deceleration in trade volumes relative to growth, monetary policy, with its closer link to capital flows and finance, has taken on more prominence. But the greater burden shouldered by monetary policy has also raised the question of what factors beyond simply inflation and growth should central banks use in calibrating monetary policy—or, more precisely, what transmission channels transmit monetary policy changes to the economy. From this concern has evolved work on financial conditions indexes (FCIs)—an effort to better measure the variety of channels through which monetary policy can affect an economy. Initially an effort to include the effects of exchange rate movements and money by the Bank of Canada and the Reserve Bank of New...