Fed's Mishkin says downturns always linked to turmoil

WASHINGTON (Reuters) - Federal Reserve Board Governor Frederic Mishkin said on Friday that economists have learned that economic downturns were always linked to financial instability and monetary policy-makers must keep this in mind.

"It is now well understood that the most severe business cycle downturns are always associated with financial instability," he said in the text of a speech in Frankfurt at an event to celebrate 50 years of Germany's Bundesbank.

A copy of his remarks was made available to the media in Washington prior to delivery.

"Minimizing output fluctuations thus requires that monetary policy factors in the impact of financial frictions on economic activity," he said in the speech, an overview of the advances made in the theory and practice of monetary policy.

Mishkin made no direct reference to current economic conditions. But his comments touched on highly topical subjects, including the benefits of an explicit inflation target, which he favours and the Fed is currently debating.