A more fundamental policy question – one that has not yet been fully thought through – is whether the policy rate itself should lean into the wind for financial stability purposes. If so, how will central banks retain accountability and credibility, and their associated benefits for inflation expectations? Could it be advantageous to amend the price stability mandate?
I would like to undertake an initial exploration of these issues today. What follows is a discussion of ideas worthy of consideration. It should not be seen as having any bearing on the current conduct of monetary policy or the prospective management of financial stability in Canada.