A growing challenge for central banks is to secure monetary and financial stability simultaneously. Indeed, somewhat paradoxically, success in controlling inflation can sometimes contribute to the development of imbalances that ultimately lead to financial stresses, with potentially serious...

This paper argues that financial imbalances can build up in a low inflation environment and that in some circumstances it is appropriate for policy to respond to contain these imbalances. While identifying financial imbalances ex ante can be difficult, this paper presents empirical evidence that...