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A New Two-Pillar Strategy for the ECB. CEPS Policy Brief No. 191, 30 June 2009

Paul De Grauwe,Daniel Gros-2009-06-01-Archive of European Integration (AEI) (University of Pittsburgh)
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TL;DRAbstract

This paper explores the question of whether there is a trade-off between maintaining price stability and financial stability (much in the same way as there can be a trade-off between price stability and output stability when supply shocks occur) and if so, which of the two objectives should take precedence. The authors analyse how such a trade-off can arise and further examine the issue of how to define and monitor financial stability and assess which policy instruments the ECB could deploy to maintain financial stability.

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This paper explores the question of whether there is a trade-off between maintaining price stability and financial stability (much in the same way as there can be a trade-off between price stability and output stability when supply shocks occur) and if so, which of the two objectives should take precedence. The authors analyse how such a trade-off can arise and further examine the issue of how to define and monitor financial stability and assess which policy instruments the ECB could deploy to maintain financial stability.

Keywords

PillarPrice of stabilityFinancial stabilityStability (learning theory)EconomicsMacroeconomicsInternational economicsMonetary economics

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