Policy Insights

Policy Insight 14: Monetary and Financial Stability

• Axel Leijonhufvud
25 Oct 2007

Deep thinking on the linkages between monetary policy and financial instability. The trouble with inflation targeting in present circumstances is that constant inflation gives you no information about whether your monetary policy has hit the Wicksellian 'natural rate'. Inflation targeting might mislead us into pursuing a policy that is actively damaging to financial stability.