This paper assesses the choice of policy instruments for crisis management and prevention and whether Central Banks should target consumer and asset prices to maintain financial stability. Our results suggest that the interest rate is preferable to the money supply instrument because in times of financial distress the Central Bank automatically satisfies the increased demand for money, and that...

Traditionally, financial systems have been bank-based or market-based. The efficiency properties of these systems are compared in various dimensions. These include risk sharing, information provision, funding new industries, corporate governance, and law, finance and politics. Both systems have advantages and disadvantages. With regard to stability, both bank-based and market-based systems are ...