The nature and importance of that role in the run-up to these and other crises is the subject of ongoing research and debate. 2 Trade-offs So, can monetary policy target inflation and still promote financial stability? This question can be addressed in two parts.
First, let’s consider a case in which monetary policy is the only tool available to promote both macroeconomic and financial stability. Later, I’ll consider how monetary policy might complement other policies that work more directly on the financial system.