Although economists were aware of the significance of the above listed for social welfare, financial stability had been in the back burner before the global financial crisis of 2008–2009. With the onset of the crisis, the importance of financial sector came to the forefront and it was understood that the costs will be immense if the instability in the financial sector spreads to the real sector. Therefore, in the period ahead, maintaining macroeconomic stability and financial stability concurrently remains a major challenge for policymakers. New policy tools and new policies might be needed to achieve both stability targets. In this context, I believe that the conference on “Financial and Macroeconomic Stability” will provide a significant contribution to policymakers. Distinguished Guests, Excessive volatility in macroeconomic aggregates, namely production, employment, budget, foreign trade and inflation, might impair the distribution of income and assets, and reduce the welfare of that society. It is therefore of utmost importance to achieve macroeconomic stability and to sustain the welfare of the society. Financial stability is crucial in providing an effective mechanism for the transfer of the economy’s resources from savers to producers. An effectively-functioning financial system will ensure balanced distribution of risks and decrease the susceptibility of the economy to shocks. Otherwise, financial crises will disrupt real sector production and the economy will suffer sizeable loss of welfare. Thus, instability in the financial sector will jeopardize macroeconomic stability.

In economic literature, capital outflows following the developments of this kind are called “sudden stops”. Turkey and many other developing countries have occasionally experienced such sudden stops. Keeping excessive volatility and international capital flows under control is crucial for financial stability. In this respect, macroprudential measures stand out as an important tool. The monetary, fiscal and financial sector policies adopted by advanced economies in the wake of the global economic crisis exposed even open developing countries with sound economic fundamentals to financial instability risk. The Central Bank of the Republic of Turkey, in view of this risk, safeguarded both price stability and financial stability simultaneously by adopting a flexible monetary policy, and thus contributed to the sustainable development path. In addition to the flexible monetary policy strategy implemented by the Central Bank as of the end of 2010, the prudent measures adopted by the BRSA accompanied by the safeguarded fiscal discipline strengthened the Central Bank’s hand. We firmly believe that we will attain very positive results with respect to price stability and financial stability by the end of 2012. Along with national macroprudential measures introduced by countries, some international criteria have also been developed for the sake of safeguarding financial stability. For example, the Basel III accords bring about new arrangements reinforcing the capital structures of financial institutions. These arrangements will ensure a more resilient financial sector against unforeseen risks and will contribute to financial stability. The recent efforts clearly point to a consensus among countries on the critical importance of safeguarding financial stability.