Central Banking in Theory and Practice. MIT Press. Borio, Claudio and Haibin Zhu. 2008. “Capital Regulation, Risk-Taking and Monetary Policy: A Missing Link in the Transmission Mechanism?” BIS Working Papers, Bank for International Settlements. www.bis.org. Carney, Mark 2009. “Some Considerations on Using Monetary Policy to Stabilise Economic Activity.” In Financial Stability and Macroeconomic Policy. Federal Reserve Bank of Kansas City. www.kansascityfed.org. Chung, Hess, Jean-Philippe Laforte, David Reifschneider, and John C. Williams. 2011. “Have We Underestimated the Likelihood and Severity of Zero Lower Bound Events?” Working Paper Series, Federal Reserve Bank of San Francisco. D'Amico, Stefania, William English, David Lopez-Salido, and Edward Nelson. 2011. “The Federal Reserve’s Large-Scale Asset Purchase Programs: Rationale and Effects.” Working paper, Federal Reserve Board. Diamond, Douglas W. and Raghuram Rajan. 2011. “Illiquid Banks, Financial Stability, and Interest Rate Policy.” NBER Working Papers, National Bureau of Economic Research, Inc. Dokko, Jane, Brian Doyle, Michael T. Kiley, Jinill Kim, Shane Sherlund, Jae Sim, and Skander Van den Heuvel. 2009. “Monetary Policy and the House Bubble.” Finance and Economics Discussion Series 2009-45. Eichengreen, Barry, Mohamed El-Erian, Arminio Fraga, Takatoshi Ito, Jean Pisani-Ferry, Eswar Prasad, Raghuram Rajan, Maria Ramos, Carmen Reinhart, Hélène Rey, Dani Rodrik, Kenneth Rogoff, Hyun S. Shin, Andrés Velasco, Beatrice W. di, and Yongding Yu. 2011. BIS central bankers’ speeches  9  “Rethinking Central Banking.” Report from the Committee on International Economic Policy and Reform. www.brookings.edu. Eichengreen, Barry, Raghuram Rajan, and Eswar Prasad. 2011. “Central Banks Need a Bigger and Bolder Mandate.” Financial Times, October 24.

2  Kohn (2007), Svensson (2011b), and Woodford (2007) explain why forecast targeting is both a better way of conducting policy and a better description of actual policy than following an instrument rule such as the Taylor rule. 3  See Assenmascher-Wesche and Gerlach (2010), Bean (2009), Bean, Paustian, Penalver and Taylor (2010), Bernanke (2010), Dokko, Doyle, Kiley, Kim, Sherlund, Sim, and Van den Heuvel (2009), IMF (2009), and Kohn (2008, 2009). BIS central bankers’ speeches  3  is relevant for the forecast of inflation and resource utilisation, including the conduct of financial-stability policy when appropriate – remains in my view the best-practice monetary policy before, during, and after the financial crisis. Monetary policy and financial-stability policy are different This leads me to the more general question of what the relation between monetary policy and financial stability should be. For instance, it is sometimes said that the objectives of monetary policy should be expanded to include financial stability (Eichengreen, Rajan, and Prasad 2011, and Eichengreen et al. 2011). Such suggestions give the impression that monetary policy and financial stability are the same thing. But they are not. It is important to conceptually distinguish financial-stability policy from monetary policy and avoid conceptual and practical confusion between the two policies. Confusion risks leading to a poorer outcome for both policies and makes it more difficult to hold the policymakers accountable. Trying to use monetary policy to achieve financial stability leads to poorer outcomes for monetary policy and is an ineffective way to achieve and maintain financial stability.