Money Police And Financial Stability

In the early 1990 s, the U.S. central bank based on the successful experience of governance "great inflation", put forward the famous "Jackson hole consensus". The consensus pointed out that price stability will automatically create the financial stability, monetary policy do not need to pay attention to financial stability. But after the 90 s, many financial crisis were happened in prices relatively stable environment. This proved that price stability is not sufficient conditions for the robust stability of the financial, monetary policy should pay more attention to financial stability. How monetary policy response to the financial stability? There are three kinds of attention way worthy of our thinking:Treat asset price volatility as a monetary policy objectives; Asset prices should be brought into the measured inflation; Refer to financial stability index both focus on price stability and financial stability.By comparing the three ways, this paper found that the former two ways has significant defects in theory and practice. Financial stability conditions index is the composite index of interest rate, exchange rate and asset prices and monetary credit variable volatility. The index can reflect the stability condition of the financial environment, and it contains the information of future inflation. So we think, monetary policy according to the financial stability conditions index of abnormal fluctuations take corresponding measures, can not only play the role of maintaining financial stability, and can control inflation in the future possible fluctuations, improve forward-looking monetary policy.In the empirical research, based on VAR impulse response variable weights is determined, financial stability index(FSCI) structure, and can detect the index both price stability and financial stability. The main conclusions are as follows: Real estate prices in China have less effect on the inflation, in conduction direction is not in conformity with the theoretical expectations; FSCI churn correspond to reality several times in the event, can accurately reflect the condition of financial stability; FSCI on inflation and output prediction performance is good, as the reference target of monetary policy can improve the forward-looking policies; Reference FSCI will help to monetary policy to a certain extent at the same time both price stability and financial stability.However, we found that when the financial instability is caused by a bubble in the asset value, the conduction mechanism of asset price is in line with the theoretical expectations determines the FSCI both the effectiveness of financial stability.1. If an asset price transmission mechanism conforms to the theory of anticipated, reference FSCI forward-looking monetary policy to control inflation, will automatically limit the rise in asset prices; 2.However, if the asset price transmission mechanism is not in conformity with the theoretical expectations, FSCI will not be able to play the role of inhibition of asset prices, and may even boost further expansion of the asset price bubble.Based on the above analysis this paper pointed out that, FSCI can enhance the prospective of monetary policy to maintain price level, and to a certain extent, makes monetary policy both financial stability, therefore should become the reference target of monetary policy in our country. But a systemic response to asset price bubbles, monetary policy also needs to cooperate with common for macro-prudential regulation. In the long term, in order to improve the FSCI response to the effectiveness of the asset price bubble, should focus on real estate prices affect inflation conduction channels.