Abstract:
The successful pursuit of the objective of low inflation by central
banks in recent decades has also delivered low variability of both
inflation and output. At the same time, numerous financial and other
"imbalances" (defined here as significant and sustained deviations
from historical norms) have emerged. Should these imbalances
revert to the mean, there could be significant effects on output
growth. Although such an adverse outcome remains only a
possibility, the question asked in this paper is whether we might still
benefit from a new macrofinancial stabilisation framework in which
monetary and regulatory policies gave more attention to avoiding
the emergence of imbalances in the first place.
JEL classification: E44, E50, E60
Keywords: financial stability, economic policy