Towards financial stability-oriented monetary policy? Some evidence

Presentation on the BIS Annual Report by Mr Claudio Borio, Head of the Monetary and Economic Department, on the occasion of the Bank's Annual General Meeting, Basel, 26 June 2016.

Should monetary policy take financial stability into account? If so, what would such a policy look like? These questions have gained greater prominence recently as tensions between price and financial stability have increased, while new research has found that a leaning-against-the-wind strategy would yield little or no benefits in terms of output and inflation. Drawing on BIS research presented in the Annual Report, this presentation argues that a financial stability-oriented monetary policy can yield significant benefits. For this to be the case, such a policy would need to keep an eye on financial stability all the time, during the whole financial cycle, so that the economy never strays too far away from "financial equilibrium".