Monetary Policy under the Border between Price Stability and Financial Stability

• Main Author: Irina-Raluca BADEA
• Format: Article
• Language: English
• Published: Universitaria Publishing House 2015-09-01
• Series: Finanţe: Provocările viitorului
• Subjects: financial crisis; central banks; financial stability; price stability; inflation targeting
• Online Access: http://www.financejournal.ro/fisiere/revista/67764957218_badea.pdf

The international financial crisis drew the line for the international and national authorities that conducted and implemented faulty monetary and financial policies, regardless the potential risks that might arise. It was only after the crisis burst when everyone realized the impact the systemic risk can have on the global financial system and, consequently, on every national economy. The conventional point of view is that inflation is the main source of financial instability, but recent evidence points out the fact that reaching the inflation target does not necessarily mean that the financial system is stable. What is the most important is that any source of financial instability should be diminished if not erased, hence preserving financial stability has become an important goal for the authorities, who dispute whether to include it on the objectives list of central banks or authorize another institution to achieve it. Therefore, the main goal of this paper is framing the present monetary policy framework with respect to its objectives and strategies and the necessity to reconsider it in a realistic manner in order to prevent another collapse in case of an economic downturn.