While the business cycle relates to real GDP fluctuations, the financial cycle considers the evolution of variables such as credit developments and house prices. Empirical analysis suggests that the financial cycle typically lasts longer than the business cycle. [56] De-synchronisation does not mean that business and financial cycles are uncorrelated. It simply means, for instance, that significant risks and imbalances can gradually build up in the financial system even in periods of low inflation and low output volatility. This is what happened during the “Great Moderation”, before the recent financial crisis surfaced. Such a de-synchronisation between the financial and business cycles suggests that, if monetary policy seeks to stabilise the financial cycle, it may take actions which are detrimental to its primary objective of achieving price stability. In addition, seeking to mitigate financial risks by changing monetary policy rates may produce inefficient outcomes. The reason is that variations in policy rates typically influence all sectors of an economy and may therefore be too broad and too blunt a tool http://www.ecb.europa.eu/press/key/date/2017/html/sp170330.en.html[03.04.2017 15:53:14]  Central bank independence revisited  to address sector-specific financial imbalances, such as in real estate. Second, to achieve simultaneously price stability and financial stability, is it necessary to have two independent policy domains, each endowed with separate goals and instruments? While monetary policy would aim to guarantee price stability, macroprudential policy aims to ensure financial stability. In particular, within the euro area, as Member States often have heterogeneous business and financial cycles, macroprudential instruments have the advantage that they can target countryspecific imbalances.

Increasingly, it is taking place through vehicles – such as open funds and ETFs – that issue very short-term (often intraday) liabilities and invest in long-term instruments. It may be a matter of priority to develop a conceptual and operational approach to macroprudential policy that allows regulators to monitor those parts of the financial system that are currently out of reach. BIS central bankers’ speeches  3  *** When central banks entered into non-conventional territory, most observers saw that as a temporary incursion. For some of us, this temporary situation has lasted seven years. For the euro area, the current horizon extends, at least, until 2017. This is quite a long period. For many young people today – say, for instance, current PHDs students -, conventional monetary policies are a prehistoric curiosity. Non-conventional is the only “normal” that they have experienced in their lifetime as adults. Will the future look like the past or be different? This question cannot be avoided for three reasons. First, over the past 30 years, long-term real interest rates worldwide have been steadily declining. If low equilibrium rates are a permanent phenomenon, which is rooted in structural shifts in the world economy, then current difficulties and challenges will persist. The chances that we will sooner or later hit the ZLB again are non-negligible.