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jose de gregorio : the role of central banks after the financial crisis keynote speech by mr jose de gregorio, governor of the central bank of chile, delivered at the bank of korea international conference 2010, 31 may – 1 june 2010, seoul, 1 june 2010. * * * i am very grateful to luis f cespedes and kevin cowan for insightful discussions and contributions. as a response to the global financial crisis of 2008 – 2009, we witnessed a period of unprecedented central bank activism. many central banks, particularly in developed economies, implemented diverse policy actions. central banks around the world reduced monetary policy rates to their lower bounds and announced their explicit commitment to keep these rates at that level for a prolonged period of time. some of them went further, including the purchasing of private securities, lending to financial institutions other than banks and exchange rate interventions. all these actions contrast with how monetary policy was conducted during the so - called “ great moderation ”, which extended since the mid 1980s. during this period, most central banks relied exclusively on short term interest rate management in order to achieve their goals. this dramatic change of events has led many observers to argue that central banks forgot about a crucial task in their mandates – financial stability – and / or they were imprudent for thinking that an adequate management of the short term interest rate would suffice to secure price and financial stability at the same time. in either case, the argument goes, the global financial crisis should lead central banks to reevaluate their role in this new era. there is no doubt that we have the responsibility to carefully assess the recent events. we need to do it in order to improve our understanding of the economy and in order to improve our macroeconomic policy design, so as to avoid crises, but also handle them appropriately. in my view, many of the lessons will not be new, but they draw from lessons from previous experiences, but forgotten in academic and policy circles in industrialized countries. i will start my discussion on the new role for central banking after the recent financial crisis by discussing the factors that were behind it. understanding these factors will be crucial to analyze if and how the objectives of central banks should be modified and potential tradeoffs between competing objectives. finally, i will discuss the interactions between price and financial stability and the challenges for central banks in the new times. what caused the financial crisis? there are many candidates being pointed out as the culprits of the financial crisis of 2008 – 2009