Monetary policy and financial stability – a simple story


Roberto Billi and Anders Vredin analyse whether a financial stability objective should affect central banks' monetary policy. Using many concrete examples from Sweden and other countries, as well as economic theory, they show that monetary policy and financial stability are closely related to one another, particularly in connection with financial crises. They therefore argue that financial stability should be an objective for monetary policy. This applies regardless of whether the central bank has the responsibility for financial stability (as in the United Kingdom), or whether this responsibility is shared with other public authorities (as in Sweden). The central banks need to continue to develop tools to estimate how an objective for financial stability and decisions on macroprudential policy measures should be taken into account in monetary policy.


The article is included in this year's second issue of the Sveriges Riksbank Economic Review, which has been published today.



By Roberto M. Billi and Anders Vredin
Roberto M. Billi works at the Research Division of the Riksbank and Anders Vredin is head of the General Secretariat, Sveriges Riksbank.

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