Pursuing financial stability under an inflation-targeting regime |
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Authors: | Q. Farooq Akram Gunnar Bårdsen Kjersti-Gro Lindquist |
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Affiliation: | (1) Norges Bank, P.O. Box. 1179, Sentrum, 0107 Oslo, Norway;(2) Norwegian University of Science and Technology and Norges Bank, Dragvoll, 7491 Trondheim, Norway |
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Abstract: | We evaluate two main views on pursuing financial stability within a flexible inflation-targeting regime. It appears that potential gains from an activist or precautionary approach to promoting financial stability are highly shock dependent. We find support for the conventional view that concern for financial stability generally warrants a longer target horizon for inflation. The preferred target horizon depends on the financial stability indicator and the shock. An extension of the target horizon favoring financial stability may contribute to relatively higher variation in inflation and output. |
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Keywords: | Monetary policy Financial stability |
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