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Uncertainties, monetary policy and financial stability: challenges on inflation targeting

Author

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  • Gabriel Caldas Montes

    (Professor da Faculdade de Economia da Universidade Federal Fluminense)

Abstract

This work aims at presenting the challenges that inflation targeting central banks may face since uncertainties represent a harmful element for the effectiveness of monetary policy, and since financial instabilities may disturb the transmission mechanisms – in particular, the expectation channel – and thus the economic stability. Financial stability must not be considered as a simple goal of monetary policy, but a precondition for central banks operate their policies and reach the goals of inflation and output stability. The work identifies different sources of uncertainties that surround central banks’ decisions; and approaches the role that inflation targeting central banks should play according to some basic principles that can serve as useful guides for central banks to help them achieve successful outcomes in their conduct of monetary policy. JEL classification: E52; E58; E61.

Suggested Citation

  • Gabriel Caldas Montes, 2010. "Uncertainties, monetary policy and financial stability: challenges on inflation targeting," Brazilian Journal of Political Economy, Center of Political Economy, vol. 30(1), pages 89-111, January.
    • Handle: RePEc:ekm:repojs:v:30:y:2010:i:1:id:95600
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    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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