Bayoumi, Tamim and Habermeier, Karl (2014), The Evolution of Monetary Policy: More Art and Less Science. Post on the IMF’s blog iMFdirect, available at blog-imfdirect.imf.org. Bernanke, Ben S. (2011), The Effects of the Great Recession on Central Bank Doctrine and Practice. Speech at the 56th Economic Conference, Federal Reserve Bank of Boston 18 October 2011. Board of Governors of the Federal Reserve System. Bernanke, Ben S. and Gertler, Mark (1999), Monetary Policy and Asset Volatility. In Economic Symposium Conference Proceedings: New Challenges for Monetary Policy. Kansas City Federal Reserve Bank. Bernanke, Ben S. and Gertler, Mark (2001), Should Central Banks Respond To Movements in Asset Prices? American Economic Review Papers and Proceedings 91, pp. 253–257. BIS (2013), VI. Monetary policy at the crossroads, 83rd Annual Report, 1 April 2012–31 March 2013. Bank for International Settlements. Blanchard, Olivier (2000), Bubbles, Liquidity Traps, and Monetary Policy. In Mikitani and Posen (eds) Japan’s Financial Crisis and its Parallels to the US Experience, Special Report 13. Institute for International Economics. Blanchard, Olivier, Dell’Ariccia, Giovanni and Mauro, Paolo (2013), Rethinking Macro Policy II: Getting Granular. IMF Staff Discussion Note 13/03. the IMF. Borio, Claudio (2011a), Implementing a Macroprudential Framework: Blending Boldness and Realism. Capitalism and Society 6 (1). Borio, Claudio (2011b), Central-banking post-crisis: What compass for uncharted waters? BIS Working Papers No 353. Bank for International Settlements. Borio, Claudio and White, William (2003), Whither Monetary and Financial Stability? The Implications of Evolving Policy Regimes. In Economic Symposium Conference Proceedings: Monetary Policy and Uncertainty: Adapting to a Changing Economy.

In addition, imbalances risk being aggravated in economic upswings, which means that some measures need to be implemented in situations where there is probably a general resistance to them – what is usually compared to “taking away the punchbowl just as the party gets going”.16 Thus, the measures may also be politically difficult to implement in some cases. The extent to which this affects macroprudential policy in practice will of course depend on the institutional set-up chosen. Difficult target to define and assess The inherent difficulty in defining concrete targets for macroprudential policy may affect the ability to implement various measures. A common formulation for the objective of macroprudential policy is “to counteract risks to the financial system as a whole”, or something similar. Regardless of the exact formulation, it is difficult to specify what the target actually entails in practice. When has it been attained? Let us say that macroprudential measures are implemented over a couple of years and that no problems arise in the financial system. Have the measures then been justified or unnecessary? The only thing the general public can observe is a lack of problems, and there could thus be a risk that the need for macroprudential measures is questioned.17 Measures could be circumvented It could also prove difficult to design a system for macroprudential policy that functions efficiently enough, and which inventive market participants are not able to circumvent. In this situation, monetary policy may need to support macroprudential policy.