However, what we actually witnessed during the credit booming period was an unwelcome combination of asset prices increase, rapid credit expansion, and subdued inflation. As a result, debate has been often framed in terms of a trade-off between price stability and financial system stability.
However, the true trade-off is not between price stability and financial system stability, but it exists intertemporally between economic stability of the present and that in the future. Although ensuring the soundness of individual financial institutions through regulation and supervision is surely important, the sound management efforts at a micro level may not be sufficient to guarantee the financial system stability.