Will central banks be able to simultaneously pursue their current multiple objectives?

- "Central banks have a traditional objective, i.e. price stability, but the economic crisis has added several other objectives:
financing of banks (lender of last resort);
maintaining liquidity in the financial markets (in particular those where banks finance themselves);
financing of countries to prevent sovereign borrower defaults."
- "The
analysis of pre-crisis developments has also led to an objective of stabilisation of credit (private-sector indebtedness) and asset prices."
- "Can central banks simultaneously have the following objectives: control of inflation, credit and asset prices, financial stability, absence of defaults among banks or countries, and financial market liquidity?"
- "We seek to ascertain whether:
these objectives may clash;
central banks have a sufficient number of instruments."
- "In fact, there should be two regimes:
one regime for the normal functioning of the economy, where the main problem has become indebtedness and asset prices, and no longer inflation for a long time; in this regime central banks would need more instruments;
a crisis regime, where the problem is defaults of banks and countries and financial market liquidity."
- "So the key problem for central banks is the transition from the second regime to the first, given the massive liquidity creation in the crisis regime."
Natixis Flash Economics 335 20100630

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