Financial stability and monetary policy

  • William C. DudleyEmail author
Original Article


Financial conditions should be an important component of the Fed’s monetary policy reaction function. I don’t think financial stability is a goal that really conflicts with the Fed’s dual monetary policy mandate of maximum sustainable employment and price stability. If one accepts the notion that financial conditions are important, you want to conduct monetary policy in a transparent way. If you don’t have financial stability, the Fed will lose its ability to influence economic activity. Even though financial stability is important, monetary policy itself is not well suited to deal with financial stability risks. We do have a problem. That’s because the other alternatives available to the Fed to deal with financial stability concerns are actually quite limited.


Financial stability Financial conditions Monetary policy Federal reserve 


Copyright information

© National Association for Business Economics 2019

Authors and Affiliations

  1. 1.Princeton UniversityPrincetonUSA

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