for monetary policy. we no longer have the luxury to look primarily to the flow of goods and services, as conventionally estimated, when evaluating the macroeconomic environment in which monetary policy must function. there are important – but extremely difficult – questions surrounding the behavior of asset prices and the implications of this behavior for the decisions of households and businesses. accordingly, we have little choice but to confront the challenges posed by these questions if we are to understand better the effect of changes in balance sheets on the economy and, hence, indirectly, on monetary policy.

##minant of inflation in the long run. while a single target is more precise, few legislatures would tolerate a central bank disclaiming any responsibility for the cyclical state of the economy or at least failing to respond to cyclical weakness. indeed, given the inescapable trade - off between inflation variability and output variability, a central bank naturally, even inevitably, accounts for the variability of output around full employment when deciding how rapidly to try to restore price stability in cases where shocks or policy mistakes move the economy away from this goal. inflation - targeting central banks often take account of output variability by defining a period of time over which any return to price stability should occur, typically two years. but such a fixed boundary may not encompass the optimal response to all shocks. a second consideration in setting the mandate is that flexibility can be a valuable asset for policymakers, given the variety of shocks that the economy may face, structural changes that could effect the nature of trade - offs faced by policymakers, and the possibility of short - run trade - offs among multiple targets. so, less precise objectives and multiple targets provide flexibility for the policymaker. to the extent that there is a single and explicit target, accountability is narrowly about performance relative to that target. on the other hand, when there are multiple targets and hence inherent shorter run flexibility and less precisely defined targets, the oversight by the legislature will typically focus more broadly on the judgments that the central bank has made in pursuing its legislative mandate. a second source of accountability is through the reappointment process. if terms are short and especially if the chairman and other voting members can be reappointed for additional terms, more control can be exercised through the appointment process, and committee members can more easily be held accountable for their policy votes. this is a clear example of the trade - off between independence ( facilitated by long terms without the possibility of reappointment ) and accountability ( facilitated by short terms with opportunities for reappointment ). as i noted earlier, federal reserve board governors are appointed by the president, subject to senate confirmation, for nominal fourteen - year terms. such long, overlapping terms facilitate independence. however, if a board member resigns before his or her term has expired, the successor is appointed for the remainder of that term. at the end of a partial term, a governor can be reappointed for a full term, but reappointment is at the discretion of the president and is again subject