Comment on Michael Woodford, 'Inflation Targeting and Financial Stability'

Michael Woodford’s paper “Inflation Targeting and Financial Stability” presents a case for tighter monetary policy, “leaning against the wind,” in order to reduce the probability of a financial crisis. However, the introduction of financial-stability instruments (macroprudential instruments) that have a more direct effect on leverage than the policy rate allows monetary-policy and financial-stability policy to be conducted separately, with monetary policy focusing on the traditional objective of stabilizing inflation and resource allocation and financial-stability policy focusing on the objective of financial stability.