##udential policy to maintain financial stability and allow monetary policy to focus on price stability. however, the definitive answer to this question will depend on the progress in the development of macroprudential policy tools and frameworks. despite some positive experiences, including in brazil, macroprudential tools are still insufficiently tested and the theoretical literature is in its infancy. the degree of success in using these tools will help determine whether there is a role for monetary policy in helping to achieve the financial stability goal. a second issue that has been the subject of considerable debate is the nature of monetary policy regimes. before the crisis, there was a strong consensus on inflation targeting ( or it ) as the most adequate monetary policy regime, due to its flexibility and transparency. after the crisis began, major central banks were soon forced to lower interest rates to the effective zero lower bound. or so we thought at the time : some central banks are now testing the bound by bringing interest rates further and further below zero. even so, it is clear that there must be some effective lower bound on interest rates. furthermore, negative rates, if maintained over a significant period of time, may result in financial market distortions ; for example by causing lasting damage to the money market fund business model. central banks responded to this new challenge through a variety of unconventional measures which included what is known now as quantitative easing ( or qe ). however, there is still no full agreement about the effectiveness and the collateral effects of these unconventional policies. ( i will speak about some of its side - effects a bit later ). even before the debate about the limits of it frameworks at a zero - lower bound, many economists, particularly in academia, proposed innovative monetary policy regimes such as price - level or even nominal gdp targeting. these regimes were seen as more powerful in the zero lower bound because they would effectively require central banks to make up for periods of below - target inflation or nominal gdp growth by keeping rates lower than required under it after the economy recovers. since monetary policy primarily affects the economy through long - term real interest rates, and therefore through agents ’ expectations for the future paths of the policy rate and of inflation, the end result would be more accommodative policy during the downturn than recommended under the it regime. bis central bankers ’ speeches a more modest proposal was to keep the it regime, but increase the targeted level of inflation. the crisis and the bubbly period that preceded it convinced many that the modern macro

alexandre a tombini : global liquidity, capital flows and inflation targeting – central banking in the post - crisis global economy keynote address by mr alexandre a tombini, governor of the central bank of brazil, at the 5th summit meeting of central banks on it, central bank of chile, santiago de chile, 15 november 2013. * * * introduction five years into the crisis, we could perhaps say that while the global economic outlook is still complex, we are beginning to see a candle light at the end of the tunnel and we are also better equipped to draw a few analytical and policy lessons from what happened. we are in a transition period : the normalization of global financial conditions is already underway, but its pace is still unclear. while growth prospects are generally improving in important advanced economies, the improvement has been uneven. in the us, recent indicators point to moderate growth. there are promising signs from the new policies being implemented in japan, while the eurozone presents a mixed picture. emerging market economies are facing an interesting albeit not surprising challenge. they have at the same time to : ( a ) continue country - specific structural reforms and growth model adaptation ( e. g., china, brazil, india, etc. ) ; ( b ) maintain financial and price stability ; after having policy - engineered their v - shape recoveries, controlled their inflationary consequences and managed destabilizing large capital inflows ; ( c ) calibrate their responses to this transition period of exiting from unconventional monetary policies, using their uneven policy room for maneuver and their preparedness ; and ( d ) make the best possible use of the foreseeable changes in relative prices including their own asset prices ; these changes are either occurring or in the making, in the light of the expected shifts in global monetary conditions in the coming months. i will focus my remarks tonight on three issues : how we prepared ourselves with policies put in place in brazil and other emes over the last few years to sail through a period of intense capital inflows and to be well positioned for the exit from unconventional monetary policies ; notwithstanding that preparation, what has been the impact and the response to the start of the normalization of monetary conditions ; and what are the few analytical and policy lessons learned in the last few years with regards to the inflation - targeting framework for monetary policy in the context of the post - crisis challenges. the policy response to large and volatile capital inflows let me begin by revisiting the rationale of the