Monetary Policy and Financial Stability

The article deals with the interaction between monetary policy and financial stability. The discussion is focused on the impact of the world financial crisis on monetary policy orientation. The question is raised whether the established consensus on the goals and instruments of monetary policy still holds. In the pre-crisis period the mainstream approach considered price stability and financial stability as two separated goals to be achieved through different policies and instruments. Monetary policy safeguards price stability whereas regulatory and supervisory framework is responsible for financial stability. The instruments of monetary policy were expected to cope only with the consequences of financial imbalances and asset price bubbles, ex post correcting their negative impact on the economy. Lessons from the financial crisis heed to a reassessment of that approach. In the article the ways towards a more active engagement of monetary policy in preserving financial stability are examined. The view is held that financial imbalances should be reacted to already in the process of their formation, once they create a systemic risk and threaten to cause financial disarray. Though the views on the possible options diverge as yet, the role of financial stability concerns in monetary policy making is likely to keep increasing in the foreseeable future.