Financial instability and the operations of central banks

Malcolm Sawyer

Chapter 3 in Central Banking, Monetary Policy and Financial In/Stability, 2025, pp 35-50 from Edward Elgar Publishing

Abstract: This chapter opens with a brief theoretical review of financial instability and possible causes. The objectives of central banks are discussed with a focus on notions of ‘independent’ central banks and the role of inflation targeting, and moves towards inclusion of financial stability among its objectives. There is a review of the inflation targeting framework in terms of, on the one hand, its relative ineffectiveness for the control of inflation and, on the other hand, the potential effects of inflation targeting on other economic variables including financial (asset price) stability and the effects of interest rate changes on resilience of the financial system. The roles of regulation, and specifically macro-prudential policies, are then considered including their development following the global financial crisis. The interrelationship of the climate emergency and financial instabilities are brought in.

Keywords: Financial stability; Inflation targeting; Climate emergency (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035302147
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