Conference contents Let me now give a very brief overview of what we will hear in the next two days: The conference will start with the session "Transmission mechanism of shocks and policies" in which the paper by Adrien Auclert, Matt Rognlie, and Ludwig Straub analyzes the monetary and fiscal policy implications of shocks to energy prices in models with household heterogeneity and incomplete markets. Then, the paper by Emiliano Luttini, Ernesto Pastén, and Elisa Rubbo will shed some light on the heterogeneous effects of monetary policy across different households in Chile. 3/5  BIS - Central bankers' speeches  Then, the conference will move to the topic of "HANK Models", where the paper by Alisdair McKay and Christian Wolf will show us optimal policy rules in these types of models, and we will be able to contrast them to optimal rules in models without household heterogeneity and understand their main differences. The importance of the inclusion of heterogeneity for monetary policy analysis is not only about the understanding of the mechanisms that this implies, but also, and probably more important, is about whether these mechanisms are quantitatively relevant in changing the policy prescriptions. If so, it is fundamental for Central Banks to have the quantitative tools to solve and estimate these complex models. The paper by Marco Del Negro, William Chen, Shlok Goyal, Ethan Matlin, Donggyu Lee, Rebeca Sarfati, and Sikata Sengupta will show us one of the first steps toward achieving this goal.

But the pricing of liquidity risk was either non-existent or inadequate in fully incorporating the maturity and currency mismatch, contingent and market liquidity risks embedded in the various banking business lines. 36. But liquidity is not only a matter of individual firm’s supervision; it is also of huge importance for the functioning of a whole system, which mainly relies on the liquidity management of a few firms. It is because of inaccurate liquidity risk pricing methodologies that large financial firms have built critical cash flow mismatches, and held substantial holdings of illiquid instruments with overestimated profitability profiles, based on unsustainable leverage strategy. 37. The Basel Committee’s renewed attention to liquidity issues is very topical. A major innovation of the proposed reform package deals with liquidity. In principle, no one will challenge the need to implement liquidity regulation for banks. Indeed, the new regulation will be calibrated and designed to help raise banks’ awareness of the cost of liquidity. Conclusion 38. In the past, financial crises have always triggered important changes in the organization and practice of Central Banking. The latest one is for me not an exception. Central banks have managed to adjust and confront several new, unprecedented challenges rather effectively and, it should be noted, with unprecedented degree of coordination and cooperation. 39. In many countries, the need to develop stronger macro-prudential policies has resulted in new assignments. As for my home county, I can say that having both monetary policy and financial stability responsibilities under the same roof has proved rather useful. 40.