The idea that central bankers should pay little heed to financial stability issues and simply “stick to our knitting” of inflation control – a position once advocated by many – seems quaintly naïve. Fortunately, the profession appears to be up to the challenge. Understanding real-financial linkages is a research priority at the Bank of Canada and elsewhere.
After all, we’ve seen how financial imbalances in one sector of one economy can be amplified and propagated across the entire financial system, leading to the worst global downturn since the Great Depression. So what I will do today is share our perspective on how we integrate financial stability concerns into the pursuit of our goals of price stability and macroeconomic stabilization.