Download this Paper Open PDF in Browser

Monetary Policy and Financial Stability: What Role in Prevention and Recovery?

25 Pages Posted: 27 Feb 2014  

Claudio E. V. Borio

Bank for International Settlements (BIS) - Research and Policy Analysis

Multiple version iconThere are 2 versions of this paper

Date Written: January 2014

Abstract

If the criteria for an institution's success are diffusion and longevity, then central banking has been hugely successful. But if the criterion is the degree to which it has achieved its goals, then the evaluation has to be more nuanced. Historically, those goals have included a changing mix of financial and monetary stability. Attaining monetary and financial stability simultaneously has proved elusive across regimes. Edging closer towards that goal calls for incorporating systematically long-duration and disruptive financial booms and busts - financial cycles - in policy frameworks. For monetary policy, this means leaning more deliberately against booms and easing less aggressively and persistently during busts. What is ultimately at stake is the credibility of central banking - its ability to retain trust and legitimacy.

Keywords: financial cycle, balance sheet recessions, expectations gap, time inconsistency, regime shifts

JEL Classification: E30, E44, E50, G10, G20, G28, H30

Suggested Citation

Borio, Claudio E. V., Monetary Policy and Financial Stability: What Role in Prevention and Recovery? (January 2014). BIS Working Paper No. 440. Available at SSRN: https://ssrn.com/abstract=2390174

Claudio E.V. Borio (Contact Author)

Bank for International Settlements (BIS) - Research and Policy Analysis ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

Paper statistics

Downloads
506
Rank
28,585
Abstract Views
1,543