That is why “This Time is Different” has so often in the past been the pre-crisis refrain [Reinhart and Rogoff, 2008]. In the monetary policy sphere, an institutional solution has been applied to this myopia problem. Specifically, in most countries these days monetary policy decision-making has been delegated to a long-sighted, arms-length agency – typically, an independent central bank. This is now accepted best practice globally [Goodfriend, 2007]. Because it faces a time-consistency dilemma every bit as acute, the self-same logic applies to macro-prudential policy. In other words, one safeguard against financial crisis myopia comes from placing the levers of macro-prudential policy in the hands of an arms-length, independent central bank [Haldane, 2013]. 4  BIS central bankers’ speeches  There is a second reason for doing so. Experience from the past and the present suggests that using the monetary and macro-prudential arms in tandem may have helped stabilise simultaneously the financial sector and wider economy. That calls for monetary/macroprudential co-ordination. Such co-ordination is more likely to be happen if these two arms are attached to a single body and head. Monetary and macro-prudential policy then represent two halves of the same central bank brain. In practice, these arguments have not, so far at least, entirely won the day internationally. A significant number of new macro-prudential frameworks have emerged internationally in the past few years. In some cases, including in the UK, central banks have been handed macroprudential responsibilities.

BIS central bankers’ speeches  3  We do not need to run a counter-factual experiment to determine the macro-prudential responses to these emerging pressures. A number of countries have already taken preventative macro-prudential action to forestall excessive risk-taking (Table 2). These measures are intended to forestall too rapid an accumulation of credit. In short, macroprudential stringency is seeking to counteract any adverse risk-taking consequences of loose monetary policy. In the UK, the Bank of England’s Monetary Policy Committee (MPC) has been pursuing a policy of extra-ordinary monetary accommodation. Recently, there have been signs of renewed risk-taking in some asset markets, including the housing market. The MPC’s macroprudential sister committee, the Financial Policy Committee (FPC), has been tasked with countering these risks. Through this dual committee structure, the joint needs of the economy and financial system are hopefully being satisfied. Some have suggested that having monetary and macro-prudential policy act in opposite directions – one loose, the other tight – somehow puts the two in conflict [De Paoli and Paustian, 2013]. That is odd. The right mix of monetary and macro-prudential measures depends on the state of the economy and the financial system. In the current environment in many advanced economies – sluggish growth but advancing risk-taking – it seems like precisely the right mix. And, of course, it is a mix that is only possible if policy is ambidextrous. To underscore this point, Chart 12 plots a scatter of counter-factual Taylor and Minsky rules in the UK over the period 1964 to 2011.