See also Levin, Andrew T., Fabio M. Natalucci and Jeremy M. Piger (2004), “The Macroeconomic Effects of Inflation Targeting,” Federal Reserve Bank of St. Louis Review, Vol. 86, pp. 51-80. 8  See, for example, Stock, J.H. and M.W. Watson (2003), “Has the business cycle changed? Evidence and explanations”, in Monetary policy and uncertainty: Adapting to a change in economy, Federal Reserve Bank of Kansas City. 6  BIS Review 43/2005  Globalisation, increased trade and at times strong growth in productivity may have made the trade-offs easier. It is possible that the costs of holding inflation at bay have been reduced.9 It appears that the short-term trade-off between inflation and unemployment has changed in Norway as well.10 Whereas a given rise in unemployment resulted in a relatively small reduction in inflation in the 1970s and 1980s, the gain in the form of lower inflation was far greater in the 1990s. This may be due to a more successful monetary policy and supply-side conditions in the economy, including wage determination. Inflation targeting has proved to be a sound system and may be particularly well suited for small and medium-sized open economies. A topic currently being discussed by academia and central banks is whether and how monetary policy should contribute to stability in the financial system. Price stability and financial stability often require the same medicine. For example, periods of strong growth in demand for goods and services will usually result in both higher inflation and increased asset prices. Both considerations may imply a tighter monetary policy.

The benefits of integrated supervision rest on the synergies between banking supervision and monetary policy given that banks play the crucial role in monetary policy transmission mechanism. In such a context, the supervisory information regarding the individual banks’ health can be highly beneficial to central banks in enhancing monetary policy effectiveness. On the other hand, expanding the central bank’s mandate with additional tasks may pose challenges with respect to central bank governance. As noted by Georgsson et al. (2015) the broader the mandate a central bank has, the more often it will be forced to find a balance between different objectives, tasks and tools. Studying the implications of financial stability tasks on central bank governance, BIS (2009) underlines the need for effective governance arrangements that should be designed to deliver sustainable conduct of monetary policy functions in combination with the additional mandate to contribute to financial stability. Further, the Report stresses the importance of clarity with respect to financial stability responsibilities, policy transparency as to promote accountability, full autonomy to safeguard against political pressures and undue influence from business and industry and close collaboration with other regulators in the country. Another important aspect is the central bank balance sheet which should be sound enough with strengthened risk-bearing capacity to enable successful implementation of monetary policy and support financial stability in case of emergency. Going back to banking supervision, besides the institutional setup, another important question raised by the crisis relates to the role of transparency and accountability in promoting more effective banking supervision.