Dysfunctional financial markets impair the effectiveness with which monetary policy is transmitted to the rest of economy. Furthermore, financial crises often force central banks to intervene as lenders of last resort, and the magnitude of the shock they imply makes it more difficult or even altogether impossible for these institutions to achieve their targets.
As the recent experience has shown, price stability is a necessary but not a sufficient condition for financial stability. Therefore, the need to look for adequate instruments to preserve financial stability has become imperative after the crisis. Given the far reaching effects that the main monetary policy tool, i.e.