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A framework for central banks and bank supervision

A framework for central banks and bank supervision

A fresh policy framework

Under this framework, monetary policy and the regulation of banks aim at stabilizing both inflation and the true economy. Stabilisation of the true economy consists in stabilising output fluctuations due to macroeconomic shocks and by financial instability. In the latter case, stabilisation of output fluctuations is attained by avoiding or reducing financial instability itself.

The central bank could have two instruments at its disposal:

(a) the short-term interest and