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Financial stability and the Macroeconomy

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  • Frederic S. Mishkin

Abstract

This paper surveys the causes and macroeconomic consequences of financial instability. It emphasizes the key role of asymmetric information in causing financial instability and explores several recent instances of financial crises in industrial and emerging market countries. The paper then discusses the appropriate macroeconomic policies to reduce the risk of financial instability and to promote recovery from financial crises, if they have occurred. It argues that Central Banks should be just as concerned with financial stability as with price stability. It emphasizes that financial stability is by no means incompatible with the goal of price stability. In fact, price stability can promote financial stability since it leads to longer duration debt contracts and a sounder currency.

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  • Frederic S. Mishkin, 2000. "Financial stability and the Macroeconomy," Economics wp09, Department of Economics, Central bank of Iceland.
  • Handle: RePEc:ice:wpaper:wp09
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    References listed on IDEAS

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    Cited by:

    1. Peterson K. Ozili, 2020. "Does competence of central bank governors influence financial stability?," Future Business Journal, Springer, vol. 6(1), pages 1-20, December.
    2. Ozili, Peterson K, 2020. "Does competence of central bank governors influence financial stability?," MPRA Paper 102042, University Library of Munich, Germany.
    3. Jayantee SAHOO, 2020. "Financial stress index, growth and price stability in India: Some recent evidence," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(622), S), pages 105-124, Spring.

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