Re-establishing market functioning ultimately relies on the behaviour of market participants. The central bank can support this process, but in the end it is the private sector that creates and maintains the market. Designing the appropriate tools to support and provide a backstop for market functioning is an important agenda for the global central banking community. As the example of the recent Bank of England interventions demonstrates, we are still in a learning-by-doing phase of this process. Concluding remarks Where does this leave the conduct of monetary policy in a context of financial stability operations? I will conclude with two points I see as key. First, it is important to keep such financial stability operations distinct from monetary policy, both in terms of communication and operationally. To the extent that such operations distort the intended monetary policy signal, they paradoxically risk interfering with monetary policy transmission, even as they are intended to support the market functioning on which that transmission relies. Second, while respecting the need for separation between monetary policy and financial stability operations, policy makers also need to recognise the unavoidable interactions between the two. After all, an injection of central bank reserves owing to a financial stability operation can have monetary implications via the portfolio balance channel just like QE. And, by design, financial stability operations will have implications for asset prices and financial markets and institutions that influence the overall stance of financial conditions, and thus highly relevant in deciding the appropriate level of Bank Rate.

On the basis of the discussions at this conference, I draw the conclusion that there is no disagreement in the economics profession on this central tenet, but a  BIS Review 110/2006  1  lot of different views on how to organise the monetary analysis so that it has an appropriate influence on interest rate decisions. And this is the second issue mentioned at the opening of the conference. As was pointed out by Prof. Christiano and his co-authors Rostagno and Motto, including informational asymmetries, transactions costs and financial frictions in “state-of-the-art” macroeconomic models allows to better reflect the role of money and credit aggregates within such frameworks. I found compelling the argument that monetary analysis be used to monitor (and possibly offset) macroeconomic risks which are not related to price stability at shorter horizons, but which may nevertheless have important consequences for maintaining price stability over the medium and long run, like risks to financial stability. On this point in particular Lucas Papademos’ remarks yesterday evening were particularly stimulating. Although the use of such models for policy purposes is in its infancy, their further development is a promising way forward and should, therefore, remain an important field of ongoing research. However, at present the practical challenge of conducting the monetary analysis requires the adoption and employment of practical and fully operational tools. Conducting such an analysis has not always proven to be an easy task.