For obvious reasons, supporting financial stability is an important objective for central banks – and has always been so. First, as noted above, monetary policy is largely transmitted through financial market operations. Hence, the effect that monetary policy has on the real economy depends crucially on the smooth functioning of financial intermediaries and financial markets.
It is at this point that financial stability analysis and monetary policy analysis are most closely interlinked. Second and more generally, major macroeconomic objectives, especially price stability and sustainable output growth, are jeopardised if the financial system suffers from instability. This is underlined by the generally high macroeconomic costs of financial crises.