Central bank Governor Perng Fai-nan (彭淮南) yesterday held a closed-door meeting with former US Federal Reserve chairman Ben Bernanke to exchange views on global quantitative easing and economic stagnation.
Bernanke, who oversaw the Fed’s response to the financial crisis in the late 2000s, first discussed “the Great Moderation,” the theory that traditional business cycles have declined in volatility in recent decades through structural changes that have occurred in the international economy.
The trend is evident in the increase of economic stability in developing nations, diminishing the influence of monetary and fiscal policy, Bernanke said.
However, Perng said the central bank has since 2010 adopted a series of targeted prudential measures to help stabilize the local housing market, namely selective credit controls for luxury and second-home purchases.
The Ministry of Finance contributed by raising property taxes, Perng said in a statement.
He also gave Bernanke an article he published in The Banker last year entitled “Why great power demands great responsibility,” which suggested advanced economies such as the US and the eurozone enjoy enormous privilege as issuers of international currencies and that this power needs to be tempered with responsibility to promote economic stability on a global scale.
The global financial crisis in 2008 has cast a long shadow over the world’s economy and a number of advanced economies have heavily depended on easy monetary policy to prop up stock prices, real-estate markets and inflation expectations, Perng said.
Low interest rates and money-printing programs have helped to push down the exchange rates of these countries’ currencies as part of stimulus packages to shore up aggregate demand and economic growth, he said.
As the US and Europe are also issuers of international currencies, their monetary policy becomes one of their greatest exports, he said.
“While the overall benefit of such policy remains to be seen, there is little doubt its spillover effect has disrupted global financial markets” in the form of real-estate and financial asset bubbles, Perng said.
Bubbles form when short-term capital flows from advanced to less developed countries and the effect is particularly evident for small and open economies, such as Taiwan, Singapore and Hong Kong, where the exchange rate plays a key role in economic and financial stability, Perng said.
The exchange rate has a tendency to overshoot and misalign with economic fundamentals, undermining financial and economic stability in those countries, Perng said.
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