BI Institute • Riset

ABSTRACT

Abstract: In this paper I discuss various underlying aspects of the linkage between monetary and financial stability and a number of central issues that still need to be analyzed further, particularly in relation to the practical significance of risktaking behavior in reshaping the workings of the monetary policy transmission mechanism.

The discussion leads us to the understanding that there are several strategic and tactical challenges facing central banks in terms of designing policy strategy to integrate the monetary and macroprudential policy framework, especially to meet the dual objectives of monetary stability (price) and financial stability.

Given the fact that the nexus between monetary and financial stability, whether they are substitutes or complements, is still an open debate, it is important to draw implications, especially related to the central bank'spolicy mandate.

Discussion of issues concerning financial stability becomes as important as monetary the issues of monetary stability since the onset of the global financial crisis of 2008/09 (GFC).