price stability in the medium - run. the new culture would also focus on decision - making under uncertainty. second, central banks either need a shift in their monetary policy framework to deal explicitly with financial imbalances, or interpret their current framework in a way that gives them more freedom in pro - actively trying to avoid that financial imbalances burst, with major macroeconomic consequences. one approach would be to keep a mandate of price stability – that is not introduce financial stability or asset prices as a second goal for monetary policy – but follow a two - track approach to monetary policy. the first track would be a sufficient guide of action when no imbalances accumulate. under these conditions, the “ traditional ” monetary policy could be followed. the second track would focus on monitoring the build - up of stocks ( for example the debt to gdp ratio ) and associated potential macro - risks ( in particular risks for price stability ) in the medium - run. this approach would require greater flexibility, since at times the policy rate could be changed even if inflation looks perfectly anchored. it would also require a horizon longer than two years, since the cycle of accumulation and unwinding of imbalances typically draws out further than two years. greater flexibility and a longer horizon imply a more challenging role for communication. how should we communicate a tightening of monetary policy when inflation is low but there are some concerns that financial imbalances are accumulating, which have a very small chance of unwinding in a very disruptive way five years ahead? another important ingredient of this approach is the close coordination, both with supervisory authorities and, once a crisis erupts, with fiscal authorities. do central banks need to abandon their current monetary framework to follow the approach i have outlined? i believe not. in practice, both the ecb ’ s second pillar and the bank of japan ’ s long - term perspective can lend themselves to – and in fact already capture elements of – this new approach. the same might be true for a flexible inflation targeting framework as it is currently followed by the reserve bank of australia. i hope that the academic scholars, policymakers and market participants that are joining us today for this workshop, will help us gain further insights into these important issues.

freedom of choice is not necessarily always better. there is a boundary across which more freedom leads to diminishing returns. people tend to grow depressed when offered abundant freedom of choice. the sense of not having enough time to make the right choice causes stress and, not seldom, to disappointments. also experiences in sweden, where workers may choose from 650 different collective investment schemes for their public dc pension show that an abundance of choice is felt to be a burden. pension funds had therefore better offer a limited number of risk profiles. subsequently, participants can choose the risk profile that suits them best. the risk - averse will opt for a no - risk profile ; those willing to run high risks, for a high - risk profile. and, naturally, those finding themselves in between these two categories will pick the low - risk variety. the security of the basic pension in any case offers participants a minimum guaranteed pension they can fall back on. for the guaranteed basic pension, pension funds should make sure that the mismatch risk is minimal. this is in compliance with the financial supervisory framework, which makes clear that either side of the balance sheet is sensitive to market rate changes and, hence, makes the interest rate risk visible. the interest rate risk is determined by the difference in maturity between investments and liabilities. as, at present, the average maturity of fixed interest assets of the pension funds varies from 5 to 7 years and that of liabilities runs to 15 years on average, a mismatch, also referred to as “ duration gap ”, is in evidence. this gap renders pension funds vulnerable to interest rate decreases. it is expected that pension funds will shift their focus to the overall risk profile in order to close this gap. they can do so by buying bonds with a longer maturity or off - balance sheet products like swaps, futures and swaptions. and to hedge the inflation risk, they can include index loans or index swap products in their investment mix. the european governments are meanwhile responding to the risen demand for long - term loans from both european and american pension funds. recently, the french government issued a 50 - year loan. also greece, germany and italy recently sold long - term paper. and, this month, the dutch government will issue a 30 - year loan. the market for index loans is still limited, but if demand picks up, index loans will automatically become an attractive financing instrument for general government. general governments are able to complement the current financial markets by issuing index loans