Assessing the link between price and financial stability

Blot, Christophe; Creel, Jérôme; Hubert, Philippe; Labondance, Fabien; Saraceno, Francesco

doi:10.1016/j.jfs.2014.12.003

Cited by 58 publications

(16 citation statements)

References 45 publications

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“…Some others suggested a variety of indicators for assessing financial stability. It starts with a single variable approach like housing prices (Frappa and Mésonnier ) or stock prices (Blot et al ) and a composite indicators approach, where a set of variables is used to construct an index for financial stability (Bordo, Dueker and Wheelock ; Cardarelli, Elekdag and Lall ; Brave and Butters ). Although the single indicator approach has been used frequently in the literature, the composite indicators approach is a better method of assessing financial stability.…”

Section: Measuring Financial Stability In Asian Countriesmentioning

confidence: 99%

“…In that case, the notion that 'price stability can lead to financial stability' may fail. Blot et al (2015) investigate Schwartz's conventional wisdom hypothesis, which says that price stability can lead to financial stability for the United States and Euro area. Their findings suggest that price stability can have both negative and positive impacts on financial stability depending upon the proxy used in measuring financial stability.…”

Section: Review Of Literaturementioning

confidence: 99%

“…Some others suggested a variety of indicators for assessing financial stability. It starts with a single variable approach like housing prices (Frappa and Mésonnier 2010) or stock prices (Blot et al 2015) and a composite indicators approach, where a set of variables is used to construct an index for financial stability (Bordo, Dueker and Wheelock 2002;Cardarelli, Elekdag and Lall 2011;Brave and Butters 2011).…”

Section: Measuring Financial Stability In Asian Countriesmentioning

confidence: 99%

“…Towards this objective, an attempt has been made to empirically establish the relationship between IT and financial stability. To measure financial market instability, a financial conditioning index (FCI) is proposed by combining seven relevant indicators of financial fragility or stress (Demirgüç-Kunt and Detragiache 1998;Osorio, Unsal and Pongsaparn 2011;Brave and Butters 2011;Hahm, Shin and Shin 2013;Blot et al 2015;Stolbov and Shchepeleva 2016;Malega and Horváth 2017).…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Monetary Policy and Financial Stability: The Role of Inflation Targeting

Sethi¹,

Acharya²

2019

Australian Economic Review

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This article examines the relationship between Inflation targeting (IT) and financial instability from 1990 to 2015 for Asian economies. To measure financial instability, a multidimensional financial conditioning index is calculated following the ECB's approach. Using a fixed effects panel data model the study finds that adoption of IT policy in Asian economies has an adverse impact on financial stability, thus rejecting the ‘conventional wisdom’ hypothesis. Further, the Vector Autoregression (VAR) result shows that an IT regime increases housing returns and encourages investors to take higher risks.

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Section: Measuring Financial Stability In Asian Countriesmentioning

confidence: 99%

Section: Review Of Literaturementioning

confidence: 99%

Section: Measuring Financial Stability In Asian Countriesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Monetary Policy and Financial Stability: The Role of Inflation Targeting

Sethi¹,

Acharya²

2019

Australian Economic Review

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“…In practice, this meant that the financial stability objective only existed implicitly within central bank thinking, while the objective of price stability was the priority. In addition, it was consensually linked in a narrower sense to the lender of last resort (LoLR) as a role of the central bank, associated with the freezing up of interbank markets (Blot et al, 2015). This is known as the clean-up strategy.…”

Section: Financial Stabilitymentioning

confidence: 99%

Needed but Rejected: How to Implement the Financial Stability Objective into Monetary Policy?

Tamás¹,

Lamanda²

2017

Period. Polytech. Soc. Man. Sci.

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Incorporating asset price stability in the European Central Bank's inflation targeting framework

Shah

Sosvilla‐Rivero

2020

Int. J Fin Econ

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We propose a new flexible inflation targeting index, the economic stability index (ESI), that could enable the European Central Bank (ECB) to implement more effective monetary policy for the euro area (EA). This index incorporates separately weighed house prices and stock prices. Furthermore, by weighting the housing sector in both normal and bubble events, it enhances the forecasting ability and accuracy of this new index. We demonstrate the resilience of this index using a range of robustness checks with multiple empirical methods. Our index that is equipped with these forward‐looking variables enhances the ability to sense potential economic risks, whilst improving price stability and minimizing the output gap variance. This broader index may assist the ECB in addressing the challenges of the long‐term decline of neutral interest rates in many EA economies and the weakening of the inflation/unemployment relationship under the Philips curve. The complexity of the ECB relationship with different fiscal authorities prevents any changes without significant structural variance. The ECB, however, can use a stabilization tool with enhanced foreseeability such as this ESI to improve stability without making significant structural changes.

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Assessing the link between price and financial stability

Cited by 58 publications

References 45 publications

Monetary Policy and Financial Stability: The Role of Inflation Targeting

Monetary Policy and Financial Stability: The Role of Inflation Targeting

Needed but Rejected: How to Implement the Financial Stability Objective into Monetary Policy?

Incorporating asset price stability in the European Central Bank's inflation targeting framework

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