The Balance Between Financial Stability And Price Stability

Traditional financial theory believes that the central bank should strictly follow the price stability objectives to formulate monetary policy.However,after the financial crisis,central banks in various countries began to realize that the objective of maintaining monetary policy with stable prices ignores the impact of asset prices on financial stability.In recent years,under the general environment of rapid economic globalization and rapid development of the financial market,asset prices have been extremely unstable,but there has been no major change in the general price level.This phenomenon will continue for quite a long time.Rapid fluctuations in asset prices not only undermine the effect of monetary policy implementation,but also detrimental to financial stability.This has led to academia's exploration of monetary policy goals.Some financial scientists began to consider whether to maintain the target of traditional monetary policy and whether they can better suppress asset price bubbles.In recent years,the explosive development of China's capital market,the total volume and structure of assets have also undergone profound changes.The relationship between asset prices and financial stability and monetary policy has become increasingly close.The monetary policy control model needs to focus on the overall price level stability in a broader sense.At the same time take into account the comprehensive goals of price and financial stability.This article first analyzes the theory of financial instability to find that asset price volatility is the essential cause of financial instability.Then the conflict between financial stability and price stability under the fluctuation of asset prices and the difficulties faced by traditional monetary policy goals trigger monetary policy goals.Thinking,coordinated and put forward a broad price index that combines the objectives of price stability and financial stability.In order to verify the feasibility of incorporating various asset prices into the broad price index,a dynamic factor model was used to construct a broad range of price indices and empirical analysis of several generalized price indices.The study found that the adoption of dynamic factor models built into real estate prices and stocks.The broad price index of prices and commodity prices is better than the traditional consumer price index in measuring changes in the economic cycle,measuring,reflecting and forecasting the overall price level,and therefore can serve as an important reference point for monetary policy operations.In order to further verify whether the constructed generalized price index can be used as a reference basis for monetary policy adjustment,and to provide effective options for dealing with the monetary policy of asset price fluctuations,we also use the proxy indicators of monetary policy in our country and the broad price index included in asset prices as samples.The relationship between the total amount and structure of money supply,credit size and structure,and broad price index.The study finds that the generalized price index can change significantly when the monetary policy changes.The monetary policy can effectively regulate and control the asset price.Based on the important role of the regulation,it determines the positioning of the forward-looking index system with the broad price index as the core.To improve the effect of monetary policy,to formulate and implement more scientific macroeconomic policies in the future,and to coordinate the implementation of the two-pillar control framework of monetary policy and macro-prudential policies to better ensure financial stability.