Monetary Policy and Financial Stability

Publication Date:

August 28, 2015

Electronic Access:

Download PDF. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

The issue of using monetary policy for financial stability purposes is hotly contested. The crisis was a reminder that price stability is not sufficient for financial stability, financial crises are costly, and policy should aim to decrease the likelihood of crises, not only rely on dealing with their repercussions once they occur.

It is clear that well-targeted prudential policies (including micro and macroprudential regulation and supervision) should be pursued actively to attenuate the buildup of financial risks.

The question is whether monetary policy should be altered to contain financial stability risks. Should it lend a hand by temporarily raising interest rates more than warranted by price and output stability objectives? Keeping rates persistently higher is also possible, but more costly.

Series:

Policy Papers

Subject:

English

Publication Date:

August 28, 2015

Price:

Free

Format:

Paper

Please address any questions about this title to publications@imf.org