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Since the financial crisis, there has been an active debate about whether and how monetary policy frameworks should incorporate risks to financial stability. The debate has moved beyond the pre-crisis focus on the ability of policymakers to identify asset bubbles and whether monetary policy can stop asset prices from continuing to rise. Research has advanced on adding financial intermediary frictions into monetary policy models. Woodford (2010, 2012) proposes incorporating a credit spread as a third variable in an optimal monetary policy rule with flexible inflation targeting. Christiano et al. (2010) show that stock market booms tend to be accompanied by low inflation, suggesting that policy rules that focus narrowly on inflation targets will destabilise asset markets and the broader economy. Interest rate rules should thus allow an independent role for credit growth to reduce the volatility of output and asset prices.
Horizons Hosts James Dorsey for a Discussion on Middle East Escalation
The Center for International Relations and Sustainable Development (CIRSD) hosted an award-winning journalist and scholar Dr. James M. Dorsey for a special Horizons Discussion on June 23rd, 2025. In conversation with Horizons Managing Editor Stefan Antić, Dorsey unpacked the lightning-fast escalation between Israel and Iran, the Trump administration’s divided response, and the wider stakes for regional and great-power politics. Read more
