Maintaining Price and Financial Stability by Monetary and Macroprudential Policy - Evidence from Asia and the Pacific

Abstract

The Great Financial Crisis of 2008–09 led many central banks to adopt explicit financial stability objectives. This raises the question of how central banks deal with the policy trade-offs resulting from potential conflicts between price and financial stability objectives. This paper presents some results from ongoing research investigating this issue for inflation targeting central banks in the Asia-Pacific region (Kim and Mehrotra (2015), (2016a) and (2016b)). We show that macroprudential policies to safeguard financial stability have also had a significant impact on inflation, potentially creating challenges for policymakers given the frequency of episodes during which low inflation has coincided with buoyant credit growth.

Full Publication: Expanding the Boundaries of Monetary Policy in Asia and the Pacific

Keywords: multiple objectives, financial stability, price stability, macroprudential instruments, monetary policy

JEL Classification: E58; E61