Interaction between monetary policy and macroprudential policies: Challenges faced by the ECB

One of the main lessons from the global financial crisis is that price stability is not sufficient to guarantee financial stability. The mandate of monetary policy is to ensure price stability in the real economy and doesn't include, and should not include, addressing potential instability in financial markets. Financial stability should be the remit of macroprudential policy, with the objective of safeguarding the stability of the financial system and containing systemic risk. The European Central Bank is very likely going to have to keep interest rates at zero for several years in order to fulfill its price stability mandate, and therefore it is critical its policy action is complemented by effective, preemptive, and coordinated macroprudential policies. However, the macroprudential framework of the euro area is fragile, especially on the borrower side, and its legal basis should be strengthened, especially within the Single Supervisory Mechanism area.