What do we really mean by monetary (or price) stability, and financial stability?
price stability conflates two ideas: low inflation, and steady inflation. The typical quadratic objective function is unsatisfactory in various ways. Blindness to a mean-amplifying, variance-preserving transformation of inflation rates is one of them, and fixation with the year unit another. Average inflation steadiness over longer periods is valuable, but scores no weight. This paper explores these issues, and others, concerning the links that monetary policy has with both financial stability and fiscal stability.
|Date of creation:||May 2007|
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