Monetary Policy and Financial Stability: Recent Approaches and New Guidelines

Recent international financial crisis has highlighted the crucial importance of financial stability and showed clearly that ensuring price stability as an objective of monetary policy is a necessary but not a sufficient condition to ensure financial stability. In this context, there have been intensified debate among researchers and policy makers on how monetary policy can bring a major contribution to financial stability and even on the award of a clear mandate for financial stability. Our paper aims to highlight the challenges that arise for central banks and their monetary policy when they try to ensure the financial stability. Also, our study highlights the vital need for price stability on medium to long term to remain the primary objective of the monetary policy and that the financial stability to be the primary responsibility of macro-prudential policies that can prevent and limit the buildup of vulnerabilities in the financial system.