Should financial stability become an additional objective of monetary policy? Maybe even on a par with price stability? To me, this would be a perilous proposition. For one thing, aiming for more than one objective risks complicating communication with the general public, thereby jeopardising accountability. Financial stability poses even greater challenges in this regard, as it is a multi-faceted concept.
From this perspective, the key analytical question is whether, by accepting somewhat larger deviations of employment and inflation from the levels otherwise attainable, we are able to sufficiently enhance financial stability in a way that significantly reduces the probability of a very severe financial crisis and the attendant serious economic costs.