The Euro crisis: financial, monetary and fiscal stability

Pre-crisis received wisdom assumed financial stability would follow from price stability; the crisis proved otherwise. This presentation will argue that price, financial and fiscal stabilities are intertwined due to financial frictions. In downturns, optimal monetary policy should identify and unblock balance-sheet impairments that obstruct the flow of funds to productive parts of the economy. In upturns, diligence is required to avoid the emergence of similar imbalances. Closer cooperation between central banks, fiscal authorities and financial regulators on an international scale is needed to overcome current challenges.