Central Banking and Financial Stability

Dear Colleagues,

Safeguarding financial stability is a fundamental responsibility of modern central banks. Since the global financial crisis in 2008, researchers have considered the efficacy of traditional monetary policy tools (i.e., interest rates, market operations and communications), macroprudential tools, financial stability communications (e.g., through financial stability reports), and prudential regulatory tools working separately or in concert to preserve financial stability. While traditional monetary policy instruments are generally used in the pursuit of price stability, financial (in)stability is an additional consideration. The remaining tools, such as some macroprudential instruments, are sometimes not available to the central bank. 

While ascertaining whether an economy is facing financial instability is generally evident, it is not always easy to tell when threats to financial stability are on the horizon. Unlike price stability, where there is broad agreement on how to measure it, threats to financial stability are typically assessed using multiple measures, methodologies, and models. For example, some researchers and central banks distinguish between shocks to the financial system and economy and vulnerabilities. Other researchers and central banks have focused on the origins of financial cycles by focusing on transmission (e.g., risk-taking, bank lending, and asset price channels).

The goal of this Special Issue is to publish new empirical and theoretical research that will help central banks safeguard financial stability and respond when there is financial instability. Topics include: (1) the efficacy of central banks’ tools used separately or together under different macroprudential governance frameworks;  (2) trade-offs between price stability, other central bank objectives (e.g., maximum employment), and financial stability; and (3) frameworks or models that can be used to monitor financial stability risks or understand transmission mechanisms.

Dr. Diana Hancock
Dr. Ricardo Correa
Guest Editors

Manuscript Submission Information

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