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Monetary and Financial Stability: So Close and Yet So Far?

Published online by Cambridge University Press:  26 March 2020

Claudio Borio
Claudio Borio*
Affiliation:
Bank for International Settlements
*
e-mail: [email protected]
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Abstract

This paper argues that changes in the financial and monetary regimes since the early 1980s may have made it more likely that financial factors in general, and the booms and busts in credit and asset prices in particular, act as drivers of economic fluctuations. As a result, the current environment may be more vulnerable to the occasional build-up of financial imbalances, ie. overextensions in (private sector) balance sheets that herald economic weakness and disinflation down the road, as they unwind, raising also the risk of financial strains and possibly even broader financial instability. Achieving simultaneously monetary and financial stability may call for some significant refinements to current policy frameworks, based on closer cooperation between prudential and monetary authorities. These refinements include a strengthening of the macroprudential orientation of regulatory and supervisory frameworks ensuring that monetary frameworks allow enough room for manoeuvre to lean pre-emptively against the build-up of the imbalances.

Keywords

financial imbalancesasset pricescreditmonetary stabilityfinancial stabilityE32E37E44E58G21G28
Type
Articles
Information
National Institute Economic Review , Volume 192 , April 2005 , pp. 84 - 101
Copyright
Copyright © 2005 National Institute of Economic and Social Research

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Footnotes

The views expressed are those of the author and not necessarily those of the BIS.

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