One lesson of the 2008-2009 financial crisis is that protecting financial stability is “is at least as important as” effective monetary policy use “in the pursuit of macroeconomic objectives,” said Federal Reserve Board chairman Ben Bernanke.
Bernanke added that he expects forward guidance and other policy communicatons to be used increasingly in the future.
“With respect to monetary policy, the basic principles of flexible inflation targeting — the commitment to a medium-term inflation objective, the flexibility to address deviations from full employment, and an emphasis on communication and transparency — seem destined to survive,” he told a Federal Reserve Bank of Boston conference Tuesday.
“An evolving consensus holds that central banks can dedicate separate toolkits to achieving their financial stability and macroeconomic objectives, but this consensus must be viewed as provisional,” Bernanke said.
“Certainly, those toolkits appear to be much better stocked today than before the crisis: monetary policy tools that can be brought to bear if necessary include the management of the central bank’s balance sheet and, to a greater extent than in the past, communication about future policies.
“Financial stability policy encompasses, as the first line of defense at least, a range of microprudential and macroprudential tools, both structural and varying over the cycle, supported by enhanced monitoring and analysis of potential risks to systemic stability,” Bernanke added.“