But this would not mean that financial conditions and indicators would become independent targets for monetary policy. Conclusions My main conclusion from the crisis with regard to monetary policy so far is that flexible inflation targeting – applied in the right way and using all the information about financial conditions that is relevant for the forecast of inflation and resource utilisation at any horizon – remains the best-practice monetary policy before, during, and after the financial crisis. But a better theoretical, empirical and operational understanding of the role of financial conditions and financial intermediation in the transmission mechanism is urgently required and needs much work, work that is already underway in academia and in central banks. Furthermore, monetary policy cannot guarantee financial stability. A separate financial-stability policy, with the objective of financial stability and with suitable instruments other than the policy rate, is required. References Adrian, Tobias, and Hyun Song Shin (2010), “Financial Intermediaries and Monetary Economics,” in Friedman, Benjamin M., and Michael Woodford (eds. ), Handbook of Monetary Economics, Volume 3, Elsevier, forthcoming. Adrian, Tobias, and Hyun Song Shin (forthcoming), “Liquidity and Leverage,” Journal of Financial Intermediation, available as Federal Reserve Bank of New York Staff Reports 328, 2007. Assenmacher-Wesche, Karin, and Stefan Gerlach (2009), “Financial Structure and the Impact of Monetary Policy on Asset Prices”, working paper, www.stefangerlach.com. Bernanke, Ben S. (2007), “Global Imbalances: Recent Developments and Prospects,” speech on 11 September 2007, www.federalreserve.gov. Bernanke, Ben S. (2010), “Monetary Policy and the Housing Bubble”, speech on 3 January, 2010, www.federalreserve.gov.

The Great Financial Crisis is a good example: at that time, solid and well-anchored inflation expectations in the euro area contributed to counteract the strong deflationary forces affecting our economies. However, since then, market-based measures of inflation expectations in the euro area have been decreasing and this decline has been even more pronounced since the beginning of 2019. This fall in market expectations has raised some questions among central bank watchers on potential risks of deanchoring of inflation expectations and more generally on our ability to deliver our mandate of price stability. I.2. The need for better information on households expectations  Let me stress that market-based inflation expectations are not the only available measures to assess future risks of inflation. Professional forecasters or consensus forecast provide a significantly higher figure than the 5Y/5Y ILS, at around 1,7% rather than 1,2% to 1,3%, although all of them point out to a decrease of inflation expectations over time (Figure 1). Market-based measures have also some technical limitations: first, related to the liquidity of 2  financial markets, and second because they are affected by the evolution of the risk premium over time. Moreover, while financial market expectations provide information on future financing conditions, the evolution of prices and wages depends more deeply and directly on what household and firms expect regarding future growth and inflation. Consequently, existing surveys among firms and households can provide very useful and valuable information on expectations.