Monetary policy and the financial crisis in Iceland

• Published in: Tímarit um viðskipti og efnahagsmál
• Main Author: Zoega, Gylfi
• Format: Article in Journal/Newspaper
• Language: Icelandic
• Published: Institute of Business Research 2010
• Subjects: Monetary policy; financial stability; carry trade; eurozone; E5; Peningamálastefna; fjármálastöðugleiki; vaxtamunarviðskipti; evruhagkerfi; Gerðar; Stjórn; Iceland
• Online Access: http://www.efnahagsmal.is/article/view/a.2010.7.2.6; https://doi.org/10.24122/tve.a.2010.7.2.6

This paper describes the monetary policy framework in the years 2001-2008, discusses the weaknesses that were revealed during these years and proposes changes that should increase the effectiveness of monetary policy in the future. The central bank should be given both more instruments as well as objectives. Its mandate should include reigning in the expansion of credit in good times, as well as private sector leverage in addition to aiming at an inflation target. The system of housing finance should be changed so that central bank interest rates affect mortgage rates and foreign currency loans to firms and individuals who do not have revenues in foreign currency should be banned. In addition, the monetary authorities should raise capital requirements when banks are deemed to be too big or expanding too rapidly; the authorities should be able to tax banks that are borrowing short term in the wholesale market; they should be able to tax borrowing by individuals and firms and/or reward them for paying down their debt; lower the maximum loan to price ratio in the housing market in a housing boom; and the central bank should actively engage in the currency markets to reduce volatility. Finally, the activities of commercial banks and investment banks should be separated. Í ritgerð þessari er umgerð stjórnar peningamála árin 2001-2008 lýst, farið yfir þá veikleika sem komu í ljós á þessum árum og lagðar til breytingar sem ætlað er að koma í veg fyrir að stjórnvöld missi stjórn á efnahagslífinu aftur. Lagt er til að bæði stjórntækjum og markmiðum Seðlabankans verði fjölgað. Þannig muni hann leitast við að hemja aukningu útlána bankakerfisins og skuldsetningu einkaaðila í framtíðinni auk þess sem hann reyni að ná verðbólgumarkmiði sínu. Gerðar verði breytingar á húsnæðislánakerfinu þannig að vextir á húsnæðislánum verði háðir vöxtum Seðlabankans og útlán í erlendri mynt til aðila sem hafa tekjur í krónum verði bönnuð. Jafnframt hækki yfirvöld peningamála lágmark eiginfjarhlutfalls viðskiptabanka ef þeir eru orðnir svo ...