In particular, there is controversy about the policy instruments that the central bank can use to ensure financial stability. One critical question here is whether monetary policy, the key policy tool of the central bank, should be used to preemptively tackle developing financial imbalances.
Prior to the global financial crisis, the majority view was that the central bank should not assume responsibility for correcting financial imbalances – whether through its monetary policy or any other tool. Given recent experience, however, the pendulum of opinion is now shifting in favor of preemptive central bank action.