In an open economy, such policy may be ineffective in controlling asset price growth and may even worsen the prospects for financial stability. I will tackle this further in my coming discussion of capital flows. The same criticism applies to the use of regulation to achieve macro stability. It could be possible to use bank capital requirements to control inflation through the supply of credit and real activity, but it would raise the cost of capital and would hit especially hard bankdependent firms and consumers while other borrowers would turn to other sources of financing. Furthermore, the relatively high-frequency changes that managing macro  2  BIS central bankers’ speeches  conditions may require may create unnecessary policy-driven volatility in financial markets. All this indicates that it is more appropriate to tackle each goal with its own type of tool. The separation of the instruments does not necessarily mean that the achievement of the goals can be separated operationally. Because of the dual causality of price and financial stability, monetary and financial policies should be explicitly coordinated. How this coordination is achieved varies across countries. At the very least, instances to monitor global risks to financial stability should exist. Central Banks should be involved in these monitoring instances (or should centralize the monitoring and supervision functions) because of their relative advantages in providing a macro view of the economy and their market contacts, due to the implementation of monetary operations. In addition regulation that could have systemic implications should be discussed in these instances.

(2011), “The Effects of the Great Recession on Central Bank Doctrine and Practice”, speech delivered at the Federal Reserve Bank of Boston 56th Economic Conference, Boston, Massachusetts, October 18th. 3  For the case of Chile, see Cowan and De Gregorio (2007), and for a review for a broad set of countries, see Magud et al. (2011). 4  For further discussion on exchange rate intervention in emerging market economies see De Gregorio (2010). BIS central bankers’ speeches  5  Blinder, A., and R. Reis (2005), “Understanding the Greenspan Standard”, in The Greenspan Era: Lessons for the Future, Federal Reserve Bank of Kansas City, Jackson Hole, Wyoming. Cowan, K. and J. De Gregorio (2007), “International Borrowing, Capital Controls and the Exchange Rate: Lessons from Chile”, in S. Edwards (ed. ), Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, NBER and The University of Chicago Press. De Gregorio, J. (2010), “Monetary Policy and Financial Stability: An Emerging Markets Perspective”, International Finance, 13:1, pp. 141–156. De Gregorio, J. (2011), “Price and Financial Stability in Modern Central Banking”, speech delivered at LACEA-LAMES Conference, November, Santiago, Chile. Magud, N., C. Reinhart and K. Rogoff (2011), “Capital Controls: Myth and Reality – A Portfolio Balance Approach”, NBER Working Paper N°16805. Ostry, J., A. Ghosh, K. Habermeier, M. Chamon, M. Qureshi and D. Reinhardt (2010), “Capital Inflows: The Role of Controls”, IMF Staff Position Note, SPN/10/04. Tinbergen, J. (1952), On the Theory of Economic Policy, Amsterdam: North-Holland. 6  BIS central bankers’ speeches