The 6th BSP International Research Conference on "Revisiting macro-financial linkages: Looking back and looking ahead" was held in Manila, Philippines on 20-21 September 2016.
Macro-financial linkages explain the interactions between the financial sector and the domestic economy, how financial sector variables such as asset prices affect the real economy or, vice-versa, how real sector variables such as economic growth and income can impact the financial sector. Such linkages were highlighted by the Global Financial Crisis (GFC) when relatively loose monetary policies in advanced economies resulted in rising leverage in both household and corporate sectors, and credit exposures to the real estate sector. These linkages may also extend to cross-border transactions—the impact of global financial markets on domestic economies—through capital flows and cross-border loans, among others.
Looking back at the recent years, we could learn from the data and refine our models, for example, comparing data during and after the peak in credit. More importantly, we need to look ahead given the two major concerns of the global economy—impending normalization in policy rates of advanced economies and slowdown in global economy—with potential impacts on both the financial and real sectors. Revisiting macro-financial linkages from these two perspectives would allow us to use the lessons from the immediate past to refine our models to equip policymakers with tools that would provide warning signals of impending risks.
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