is starts to emerge, without having the illusion that monetary policy could provide the whole solution. the problem will have to be addressed by other instruments, like regulation and supervision. in what concerns monetary policy, the fullinformation approach that i described as one of the five main principles in the conduct of monetary policy may be particularly useful here. in particular, looking to developments in credit aggregates may be informative, namely because, as suggested by research done in the bis, buoyant credit expansion is normally – albeit not always 25 – associated with asset prices booms. claudio borio and philip lowe ( 2002 ) “ asset prices, financial and monetary stability, exploring the nexus ” bis working paper no. 114. white, william ( 2006 ) “ is price stability enough? ” bis working paper no. 205. rajan, raghuram g. ( 2005 ) “ has financial development made the world riskier? ” nber working paper no. 11728, november 2005. constancio, vitor ( 2002 ) “ policies and institutions for global financial stability ” in 8th international financial and economic forum, vienna november 2002. for instance, in the case of portugal we had high credit growth in the second half of the 90 ’ s but there was no asset price bubbles either in the stock market or in housing. the existence of the sort of short - term trade - off that we are considering may create significant problems to the inflation targeting monetary policy regime. being by definition very much attached to targets and forecasts for inflation as an almost exclusive basis for decisions, that framework has difficulty in incorporating other considerations into the decision - making process without losing some credibility. the notion that this can be overcome by extending the horizon of the inflation forecast by a number of years does not look realistic and has not been attempted. it is however very interesting the addition made by the central bank of norway to the list of criteria to assess future interest rate policy that i mentioned earlier and refers to asset prices increases and aggregate credit growth. of course, this criterion, although subordinate, only adds to the difficult of the framework to fend off the accusation of having multiple objectives hidden behind a single denomination of « inflation targeting » without the transparency of disclosing the exact criteria that may justify a temporary deviation from the main target. a disclosure, let me add, that i would consider virtually impossible or unwise to do. an important argument that alan blinder uses to defend his view on asset price bubbles is that the

curb the emergence of financial imbalances has reached a point in which we are in condition to avoid any financial crisis. in the meantime, economic policy has acquired a macro - prudential scope, aiming at leaning against the wind, which includes several tools as the countercyclical setting of traditional 1 / 2 bis central bankers'speeches measures of capital requirements and borrower based instruments. however, macro - prudential policy is still quite recent and more research, namely on the instruments that can be used and on their potential impact, is still needed. the underlying ‘ buffers ’ were not built up before ( and during ) the crisis, additional tools still need to be developed, and more work is still needed to establish a comprehensive macro - prudential toolkit beyond banking, which to date is lacking. issues such as how to optimally coordinate policies and how to avoid time - inconsistency problems in this coordination are still outstanding. this is even more evident in a currency union where monetary policy affects the entire region, but macro - financial imbalances may be local in nature. today ’ s conference will address many of these issues by discussing : the main challenges imposed by this changed environment on financial institutions ’ profitability, behaviour towards risks and on overall financial stability ; possible issues arising from the implementation of macro - prudential policy, such as : ( i ) defining the optimal policy stance, ( ii ) availability of policy instruments to mitigate vulnerabilities in the downturn of the financial cycle, and ( iii ) the interactions of policy instruments in the mitigation of systemic risk, and the most promising advances in research to overcome the existing limitations to the most commonly used methodologies in the analysis of systemic risks. i thank you all for your participation and wish you a very pleasant and constructive conference. 2 / 2 bis central bankers'speeches