conditions and clearly have implications for one another. • to illustrate the implications of monetary policy for macroprudential policy, consider the example of hong kong, where the unusually low interest rates since 2009 ( as a result of their peg to the us dollar ) have fuelled sharply rising prices across a range of residential and commercial properties ( he 2014 ). attempts to attenuate the financial stability risks from this broad property price boom with targeted macroprudential measures resulted in a large number of measures being applied, even including ltv restrictions on stand - alone car parking spaces, to which the boom had spread. • if loose monetary policy can lead to a build up of financial stability risks, then the converse must also be true – tighter monetary policy can be used as a means of reducing financial stability risks. most empirical estimates show that a temporary tightening of monetary policy can be expected to reduce real debt levels – and bis central bankers ’ speeches hence the probability of crisis – by discouraging households and firms from increasing leverage in the medium term, even if the transmission ( through reduced aggregate demand and a higher interest burden ) involves a short - run move in the opposite direction ( for example, goodhart and hofman ( 2008 ) ). • this was recognised in the design of the uk monetary policy committee ’ s 2013 guidance that it intended to maintain a highly accommodative stance of monetary policy until economic slack had been substantially reduced. recognising the financial stability risks that could emanate from a commitment to maintain low interest rates, the mpc set a “ knockout ” whereby their guidance would cease to hold if the financial policy committee judged that the stance of monetary policy poses a significant threat to financial stability that could not be contained by the combination of macro and micro prudential policy tools available. • what about the more difficult question of whether monetary policy should be used to lean against the wind. the answer is a more obfuscating “ that depends. ” specifically, it depends on the efficiency and efficacy of the macroprudential tools and institutional framework available, a point eloquently made by my colleague don kohn recently ( kohn 2015 ). • take the extreme case in which there are no macroprudential tools. in such circumstances monetary policy may be the only means of tackling system - wide financial risks, but it would come at the cost of significant effects on the real economy – precisely because monetary policy “ gets in all the cracks. ”

a national level. however, many emerging macro prudential risks are cross border in nature – for example the gfsr has identified global factors as having played an important role in the quadrupling of corporate debt across major emerging economies, much of which is in foreign currencies. the risk inherent in this build up of leverage has motivated calls for a normalisation of advanced economy monetary policy sooner rather than later – a global leaning against the wind. • but tightening advanced economy monetary policy solely to discourage further borrowing could make the job of getting inflation back to target more difficult. so, just as using a targeted macroprudential tool is preferable to using monetary policy to tackle domestic financial stability risks, so too would it be preferable to use efficient and effective international macroprudential tools to target global risks to financial stability. the framework for international macroprudential co - ordination is currently still in its infancy, and there is much room for improvement by way of surveillance, design and implementation of global macroprudential tools. this perhaps is the next frontier for macro - prudential policy and an important one for the fsb and imf to take forward given the potentially significant negative spillovers that might result. bis central bankers ’ speeches