Skip to Main content Skip to Navigation
Journal articles

Trade-offs between macroeconomic and financial stability objectives

Abstract : Ten years after the 2008-09 global financial crisis, most advanced economies have recovered and global economic growth has taken hold. However, partly due to accommodative financial conditions, financial risks are on the rise while inflation remains subdued. This revives the debate on the role of monetary policy in containing financial risks. This paper provides a framework to investigate trade-offs between macroeconomic and financial stability when the central bank has a financial stability objective. Relying on a New Keynesian model with an endogenous financial bubble, our simulations suggest that a central bank attempting to “lean against the wind” may face trade-offs between inflation/output stability and financial stability. We therefore argue that the interest rate should be used for achieving traditional macroeconomic goals, and a second, macroprudential instrument should complement the policy rate to tackle financial risk accumulation.
Document type :
Journal articles
Complete list of metadata
Contributor : Accord Elsevier CCSD Connect in order to contact the contributor
Submitted on : Wednesday, July 20, 2022 - 3:11:52 PM
Last modification on : Wednesday, July 20, 2022 - 3:11:59 PM


Files produced by the author(s)


Distributed under a Creative Commons Attribution - NonCommercial 4.0 International License



Armand Fouejieu, Alexandra Popescu, Patrick Villieu. Trade-offs between macroeconomic and financial stability objectives. Economic Modelling, Elsevier, 2019, 81, pp.621-639. ⟨10.1016/j.econmod.2019.02.006⟩. ⟨hal-02512397⟩



Record views


Files downloads