Later on, the two mainstreams merged in order to create the dynamic stochastic general equilibrium models based on which monetary policy has been conducted ever since the early 1990s. 10  BIS central bankers’ speeches  After practitioners and theoreticians agreed on the above mentioned issue, low and stable inflation became the main, and sometimes the only objective of monetary policy. Blanchard et al. (2010) showed that “this was the result of a coincidence between the reputational need of central bankers to focus on inflation rather than activity (and their desire, at the start of the period, to decrease inflation from the high levels of the 1970s) and the intellectual support for inflation targeting provided by the New Keynesian (NK) model”. According to the NK standard model, low and stable inflation is indeed the best policy to pursue, since the “divine coincidence”, as Blanchard and Gali (2006) called it, is assumed to hold, so that by maintaining a stable inflation, the output gap equals zero. Thus, within this framework, central bankers were able to take care of production without further debating the issue. Moreover, this suited the practitioners since, according to this model, the interest rate was the only instrument resorted to for attaining the inflation target, just like in practice. Nevertheless, preserving stable inflation does not ensure a zero output gap, where the economy also faces other imperfections than the nominal ones. Although both theoreticians and practitioners were aware of this, they maintained their view that low and stable inflation was beneficial for the economy.

The acting Chairman of the National Committee for Financial Stability is the NBR Governor, while its members include the Minister of Public Finance, the President of the National Securities Commission, the President of the Insurance Supervisory Commission, the President of the Private Pension System Supervisory Commission, and the CEO of the Bank Deposit Guarantee Fund. At hindsight, I believe we have made the right choice – although at the end of the nineties I was wondering, in light of the aforementioned Board disputes, whether separating the monetary policy and the supervision functions was preferable, at the end of the day, I think it is better to sort out such disputes under the same roof. Moreover, the ongoing complex  BIS central bankers’ speeches  9  challenges to financial and economic stability call for identifying, using and corroborating tons of information in order to articulate the adequate policies. The central bank relies on its database and expertise, which are prerequisites for managing such a challenging environment. Besides, clearly acknowledging the links between price stability and financial stability means that they need to be taken into account when formulating the monetary policy. The issue of multiple objectives that may sooner or later become conflicting objectives remains, of course, a matter of concern. There is a single monetary policy rate and its adequate level, at a given point in time, for reaching the inflation target may well differ – or even completely differ – from the level required for ensuring financial system soundness.