Regarding ex-ante policy measures to address financial imbalances, some argue that, based on Tinbergen’s rule and Mundell’s assignment principle, the authorities should assign monetary policy to price stability while tasking regulatory and supervisory measures with the challenge of addressing financial imbalances.
However, such a policy assignment can be effective only when the two policy objectives of price stability and financial system stability are independent from each other. A series of events in recent years have made it clear that the two policy objectives are not independent.