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The role of the central bank in ensuring financial stability: lessons from foreign experience for Ukraine

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  • A. Shkliar

Abstract

The author reveals the need for the central banks (CB) to provide financial stability. The basic functions of an operationally independent central bank are studied as well as the concept of financial stability and the compatibility between such CB's targets as price stability and financial stability. The article considers the dilemma of "lean vs clean" related to the speculative growth of assets prices and systematizes the theoretical foundations and practical evidences of each approach. The author analyzes the existing CB's instruments of ensuring financial stability as well as the existing shortcomings in the approaches to regulation and supervision in the banking sphere. The use of last resort lender instruments by the CB is examined, and the criteria and risks associated with their wide use are outlined. The world experience of the CB's responsibility for financial stability is systematized with an emphasis on the strong need to develop and implement macroprudential monitoring and regulation to ensure financial stability as one of the key targets of the Central Bank of Ukraine.

Suggested Citation

  • A. Shkliar, 2013. "The role of the central bank in ensuring financial stability: lessons from foreign experience for Ukraine," Economy and Forecasting, Valeriy Heyets, issue 4, pages 49-61.
  • Handle: RePEc:eip:journl:y:2013:i:4:p:49-61
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