Households and firms want stable economic and financial conditions. Economic and financial stability is very important for households and firms in planning their economic activity, both in consuming, producing, as well as investing. Stability is a condition where the economy and the financial sector are in a stable condition, not experiencing many fluctuations. In addition, it is also shown by the stability of the price level and exchange rate. Economic and financial stability needs to be maintained. Stability is a prerequisite for continuity of development towards a strong and sustainable economy. Economic and financial instability disrupts development, and many resources are devoted to coping with it.
The government and central bank maintain economic and financial stability through stabilisation policies. There are several stabilisation policies that the government and central bank can carry out, namely monetary policy, macroprudential policy, fiscal policy, and capital flow and exchange rate policy. The four policies complement each other. Some central banks implement a policy mix in stabilising the economy and financial sector. Generally, the policies are countercyclical. When the economy experiences expansion, policies are taken to hold the expansion rate so it is not too high. Conversely, when the economy experiences contraction, policies are taken to encourage the economy to increase again.