Question 3: Evaluate the efficacy of monetary policy over the last decade and explain why central banks are reviewing their policy
Central banks play an important role in stabilizing the financial and economic stability for the nation. The banks are responsible for regulating the monetary policies and level or stabilize the inflation rates. A regular check and evaluation of the financial policies has helped in reducing the risks associated with the financial stability and in handling the volatile exchange rates. The effectiveness of the monetary policies in last 10 years has drastic changed, where a need to set out a clear policy frameworks to acquire the objectives were properly defined. Operational policies and processes are particularly tailored in accordance to the nation’s circumstances where the effectiveness is drastically increased by the central bank policy implementation. This process is supported by the IMF where the nations are provided with the policy drafting and in rendering the technical assistances. In this report, the efficacy of the monetary policies in last 10 years and the role of the central banks in reviewing the relevance of the policies are conducted (Blinde et al., 2008).
Role of the central banks
Central banks draft monetary policies to acquire price stability in case of unstable or low inflation market conditions, which creates a higher range of challenges for the economic growth. A policy framework is created by the banks so that the relevant changes are accurate changes are accurately implemented. The inflation issue has always being quite serious since 1980, and thus needs to be considered in the creation of the framework for improving the monetary policies. Different central banks like the one in operating in Canada, the UK, and New Zealand had successfully introduced explicit inflation process.
In case of the low income nations the transitions are based on targeting the monetary aggregation to adopt the inflation target framework process. This is an effective measure used for calculating the volume of the funds that are circulated in the market. Post global financial crisis handling, the central banks have in advanced economic nations has regularized the monetary policies by controlling the interest rates until there were a short term rates and this was reduced to a lower of zero. This had limited the options available with the central banks to cut or the control policy rates which is highly limited with the conventional monetary fund or options. The central banks are entrusted with the policy formation, where the regulation is conducted as this would be useful in properly allowing the funds in the targeted market (Calabria, 2016).
The policies are drafted to reduce the risks of deflation rise, where the central banks untaken the unconventional monetary policies, which affects the inflation rates. This includes purchasing the long-term bonds, especially in the developed nations like the UK and the US. The objective to review the policies on a regular basis is to reduce the long-term bank rates thus loosening monetary analysis and conditions. Policy analysis is also conducted to have a look at the short-term rates that would be below zero.
Regulating policies for foreign exchange
The selection of the monetary framework and policy improvement is regularized with the exchange rate processing which helps in improving the policy formation. A nation that has a limited monetary framework is directly linked with the choices of the exchange rate that is integrated with the flexible exchange rates. By adopting independent monetary policy regulations the central bank introduces flexible exchange rates. There are few nations that are adopted and implemented in accordance to the tradeoff process that are adopted with the price stability objectives. By adopting the complete flexible exchange rates, the proper support system is introduced for an effective inflation rates target framework system (Noyer, 2016).
Adoption of the macro prudential policies
In the situation of the global financial crisis, the nations and the banking system needs to identify the risks and contain the risks to improve the financial systems, which is done through the improvement of the financial policies. The central banks play an important role in determining the strategies that are the key aspects that would be used for properly regularizing the policies and in introducing the changes that would benefit the economic conditions.
There are different central banks that are also used for mandating the process of promoting the financial stability and thus constantly upgraded the financial situation handling process. This is done by the central banks by introducing the macro prudential policy frameworks where the policy improvement is constantly analyzed and corrective measures are introduced by properly improving the instructional foundations that would work effectively. The central banks are placed well to conduct the macro prudential policies as it has a proper capacity to examine the systemic risks that affects the inflation rates (Bernanke, 2006).
These are the needed factors that would be used for reducing the financial risks that are included in the analysis of the strategies. The macro prudential policies are developed by the central bank to make it a complete autonomous process where the relevant changes are introduced for handling the operational works and in regulating the framework needed for improving the financial policies. The model selection is the key aspect that would be used for setting-up the intuitional framework which needs to be quite strong to handle the oppositions that prevails in the financial industry. This is also used for improving the political pressures and in implementing the legitimacy process and making the financial institutions accountable for the changes introduced for reducing the financial risks and in handling the issues arising from the inflation rates (Garín, et al.., 2016).
By setting up the institutional set-up process, the performances of the financial policies are drafted by the central banks and accurately introduced by the leaders. It is thus needed for adopting a better policy that would highlight the objectives and provide the essential legal powers that that would be based on the operation amongst the regulatory agencies. A dedicated policy making process is needed to regulate the new policy making functions which is done through the mapping process, where the analysis is conducted to identify the systematic vulnerable factors, which is resolved through the macro prudential policies.
Support by IMF
The central banks are highly supported by the IMF where the effectiveness of the system is introduced through the multilateral surveillances and policy formation process. In the multilateral surveillances are integrated in the policy formation, where the attempt is made to introduce a better processes that would avoid the situation of the unconventional monetary policies. This is quite helpful in regulating the challenges that exists in the underdeveloped and developing nations. The funds are properly examined, and the relevant changes are introduced by establishing the relationship between the macro prudential policies and monetary factors. These are relevant for introducing the policies or principles that are needed for establishing the well-functioning frameworks. The central banks are involved in the formation of financial sectors assessment programs, where the relevance of the policies and its benefits are identified by the central banks were the relevant changes are introduced for getting the better policies to improve the strategies for the banks (Cuthbertson et al., 2007).
Blinder, A., Ehrmann, M., Fratzscher, M., Haan, J., and Jansen, D., (2008). Journal of Economic Literature Vol. 46, No. 4, pp. 910-945
Bernanke, B (2006). “Monetary Aggregates and Monetary Policy at the Federal Reserve: A Historical Perspective”. Federal Reserve.
Calabria, Mark A. (2016). “Behavioral Economics and Fed Policymaking”. Cato Journal. 36 (3): 573–87.
Noyer, Christian (12 January 2016). “Thoughts on the zero lower bound in relation with monetary and financial stability”. Bank for International Settlements
Question 4: Discuss the Environmental, Social and Governance (ESG) risks to business posed by climate change
There has always been a debate over the short term financial profit and the ways of acquiring the long-term sustainability for the companies. These have been a major issue especially for dealing with the environmental based issues, which is highly faced by the organization while planning for the sustainability growth. Environmental, social, and governance system has always been the core factors that were considered while making the decisions on dealing with the greenhouse emissions and in handling the other environmental based issues. A good and sound governance system is required for successfully taking care of different environmental and business based decisions that has a major impact on developing a relationship with the customers and in doing the right things. This report examines the corporate, social, and governance based challenges that directly and highly affect the business conduct (Chams & García-Blandón, 2019).
Social challenges, governance issues, and ethical standards have always been a major issue that impacted the way the companies make a decision. These factors are assumed to have a direct impact on the climatic changes that is related with the business conduct and operational system. Business decisions and the risks associated with the same are quite likely to impact the investment returns, and thus needs to be effectively and properly handled by the leaders. There are different task forces that functions around to find a proper and effective solution to deal with various climate related challenges and in properly disclosing it to the internal and external stakeholders on a regular basis. A proper recommendation is made on various climates related financial risk disclosures those talks about how the changes are made and how it impacts the business conduct. These are the important aspects that are associated with the risk analysis, where the social and environmental based issues are properly examined to analyze the substantial financial implication on the operations made by the companies. Governance, social, and environmental aspects are the key aspects that are properly and accurately integrated in the decision-making process where the relevant changes are introduced by the management to deal with various business based issues (Dixon-Fowler et al., 2017).
Social aspects for the company is related with the process followed for making the relevant decisions on dealing with various environmental based issues are determined. For instance introducing a proper system for reducing the usage of papers, usage of the electricity and others are the major issues that would be directly impact the operational works. The decisions made by the company, and its impact on the businesses are properly and accurately included in the sustainability report, which is the key aspect that is used for communicating with the concerned stakeholders.
In the environmental issues, the process followed for dealing with the product wastages, and in properly and in properly dealing with the associated issues. Despite of its relevance, there are some companies that has not completely recognized the climate related risks including the financial risks and in highlighting its impact on the operational strategies that are decided by the management. There are some of the key stakeholders who assume that climate based financial risks are not materialistic and is not needed to be catered. In this case, the management certainly needs to include the necessary facts and information that would be used for positively including the facts and in dealing with the associated based challenges.
The issues related to the climate change forms one of the major sustainable developmental problem and it needs to be properly and accurately disclosed in the books of the accounts. Disclosures of the information are quite important, and thus forms an integral part of the management policies that would highlight the ways to deal with the energy conservation, carbon reduction, and also the integrated energy usage. These are the important aspects that would be used for dealing with the greenhouse gases emission handling (Chu & Schroeder, 2010).
Some of the companies overlook this need and doesn’t integrate the various climate related opportunities and risks as an integral part of the business strategies and this is not an acceptable concept. The relevance of the policy implementation and its impact on the organizational decisions are quite an important aspect as this would be useful in dealing with various business based challenges.
Climate change an important aspect of corporate environmental issues
Climate change and its impact on the environment is one of the serious issues faced by every nation in last two decades. Thus it has been declared as an issue that would need global urgent issues that needs to be catered in a proper manner. As stated by the United Nations sustainable developmental objectives, every country and companies need to take proper measures for introducing the action plan to tackle with the issues arising from the climatic changes. An urgent requirement is needed for catering the business based issues, which requires immediate attention (Galbreath 2012).
A change in the climatic situations like the rising sea levels, changing weather conditions, and increase in the greenhouse concentration are one of the important aspects that would talk about the means and measures taken by the companies to overcome the challenges. As stated in the Paris agreement, it is quite important for the firms to follow the rules and regulations that would be used for projecting the environmental and deal with the known and unknown challenges that arises due to the policy changes. A comprehensive oppression to explore the climate-based risks and the measures to be taken to deal with the same are accurately planned and included in the disclosure report.
Governance and the social aspects
In the governance system, the decisions made by the companies to deal with the associated challenges are analyzed. This analysis is done so that the relevant changes in the statement disclosures and in winning the trusts of the managers are included in the evaluation process. In the governance system, it is necessary for determining the necessary changes that would communicate the relevance of the changes that would be required for getting the better results. This forms the most important part of the strategic plan where the leaders decide the exact process that is needed for accurately introducing the relevant changes (Keay, 2017).
In the social aspects, the benefits planned to be provided to the people and how the costs would be recovered from the customers is included in the analysis part. This is the most important part of the strategic planning, where the type of benefits to be provided to the people, and in returning the benefits to the people or the community are decided. In this process the type of benefits to be provided to the people and how will it benefit the environment are highlighted. These factors are considered to be quite important, as it would be useful in handling the business based challenges, where the relevant changes are introduced for properly improving the strategies that are followed for providing maximum benefits to the community (Howard‐Grenville et al., 2008).
The strategies adopted for the social, environmental, and governance system in regards to the climatic changes is quite an important aspect. These are the factors that would be closely included in the analysis of the strategic plans that are decided and accurately implemented in regards to the conduct of the works. The disclosure of these strategies are quite important as it would help in dealing with the associated challenges and in providing the right reduces and information that would be used for properly and accurately introducing the relevant changes.
Chams, N., & García-Blandón, J. (2019). Sustainable or not sustainable? The role of the board of directors. Journal of cleaner production, 226, 1067-1081
Chu, S.Y. & Schroeder (2010). Private Governance of Climate Change in Hong Kong: An Analysis of Drivers and Barriers to Corporation Action. Asian Studies Review, 34(3), 287-308.
Dixon-Fowler, H. R., Ellstrand, A. E., & Johnson, J. L. (2017). The role of board environmental committees in corporate environmental performance. Journal of Business Ethics, 140(3), 423-43
Galbreath, J. (2012). Are boards on board? A model of corporate board influence on sustainability performance. Journal of Management & Organization, 18(4), 445-460.
Howard‐Grenville, J., Nash, J., & Coglianese, C. (2008). Constructing the license to operate: Internal factors and their influence on corporate environmental decisions. Law & Policy, 30(1), 73-107
Keay, A. (2017). Stewardship theory: is board accountability necessary? International Journal of Law and Management, 59(6), 1292-1314.