The WSJ reports,"Central bankers around the world may have to take financial stability into greater account, in addition to their usual duties of keeping inflation low while maintaining close cooperation with each other, International Monetary Fund managing director Christine Lagarde said Sunday.
"We need to continue to strive for improved prudential frameworks for the financial sector so as not to overburden monetary policy," she said in prepared remarks to a conference in Portugal. "But where macroprudential policies fall short, monetary policy will have a larger role than in the past to maintain financial stability."
Ms. Lagarde acknowledged that a greater role in financial stability could pose a challenge to central bank independence, given the ambiguous nature of how to define these types of matters. One response would be to maintain the focus on keeping inflation low, while also considering steps such as maintaining monetary policies and those to ensure financial stability housed in different institutions.
Ms. Lagarde's speech opened a two-day conference sponsored by the European Central Bank in the ocean-side town of Sintra near Portugal's capital. The conference has gathered policy makers from central banks and other international bodies as well as top academic economists, making it many ways the ECB's version of the Kansas City Federal Reserve's annual conference in Jackson Hole, Wyo.
The IMF has in recent weeks urged the ECB to weigh more aggressive policy measures to combat the risks of too low inflation, or as the IMF has dubbed it, "lowflation." Major central banks typically target inflation rates around 2%. The problem occurs when it softens too far below that: debts become harder to finance for households, businesses and even governments, weighing on spending and investment".
