Consideration on the price stability – financial stability relationship in the context of financial globalization

Abstract

This study is focused upon the involvement of the central banks regarding the fulfillment of the two main objectives: price  stability and financial stability. These two key concepts are part of an old and ongoing debate that the current turmoil has revived, and that is whether monetary policy should aim, or not, at ensuring financial stability in parallel to its main objective of price stability. On both sides there are solid and well known arguments. In the beginning of the study I have  considered a literature review with regard to price and financial stability issues. After that I have tried to shed some light (from a theoretical point of view) on the nature and dynamics of the fundamental interlinkages between the two aspects and there implications on the central banks and the economy. Finally I outline some general conclusions that have emerged in the present study.