To be clear, I’m defining leaning as choosing a different path for interest rates than would be optimal for the inflation target in order to mitigate risks to financial stability. This could mean, for example, accepting a significant delay in getting inflation back to target so as not to exacerbate financial vulnerabilities along the way.
Understanding the links At this point, let me remind you of a complicating factor for policy-makers that I mentioned earlier – the fact that macroeconomic and financial objectives aren’t always consistent. It’s clear that financial system policies – including global frameworks such as Basel III and country-specific macroprudential policies – can reduce the likelihood of financial imbalances and crises by reducing tail risks.