seems, to be a user than a producer of it. the point of saying all this is not to poke fun at those whose prognostications a decade ago turned out to be wide of the mark. anyone who has to forecast for a living has, from me, a degree of sympathy. the point is simply that forecasting is very hard and that the latest conventional wisdom often turns out to be just a passing fashion. we might add that market pricing, at some points in time, may not be much better than that, even though markets tend to get it roughly right on average. long - term trends having given that caution, it is worth recounting just a few of the trends we can observe over the past decade or longer. the increased borrowing of the household sector was one such notable trend. it had already been under way for nearly a decade by 2000, but kept going for the best part of another decade after then. i have said before that this probably won ’ t be a feature of the next decade. we are seeing more caution in borrowing, and the rate of household saving from current income, while still low, has risen over recent years. it follows that some personal and business strategies that did well in the earlier period of households gearing up probably won ’ t do as well in the future. other trends have been a continuation of developments that had already been under way for a long time. for example, as a share of the economy, services have continued to rise, while manufacturing and agriculture have declined. those sorts of trends, in broad terms, are pretty common to advanced economies. mining ’ s share of output had changed little since the mid 1980s, but has picked up noticeably over recent years. this seems likely to continue in the near term at least, so we are seeing a see macfarlane i, “ talk to world economic forum asia pacific summit melbourne ”, 11 september 2000 and the australian financial review, “ whither the new economy? ”, 6 march 2000. see harcourt t, “ should we worry about the it deficit? ” < http : / / www. austrade. gov. au / should - we - worry - aboutthe - it - deficit - / default. aspx >, 16 october 2000. faster pace of change in the relative sizes of industries than we had seen for a number of years. formal metrics of the extent of structural change in the industry composition of gdp have increased but do not, at

control ), linked by a forecasting framework and an understanding of the feedback between instrument and objective. this broad schema has been thoroughly researched, and lies behind much of the thinking in actual monetary policy decision processes. there is also a well understood case for independence of the monetary bis central bankers ’ speeches policy process, and for transparency and clarity of objectives which has been widely built into institutional structures around the world. it strikes me that there is nothing commensurate with this schema in the field of financial stability policy. instead of a single instrument, we have a multiplicity of instruments ( e. g., capital rules, some of which may be time varying, risk weights, lvrs, liquidity rules, infrastructure requirements, supervisory intensity ) whose effects are difficult to quantify. and the objective of financial stability has no simple metric. it can ’ t be summarised in a continuously observed number like the inflation rate, though obviously we know financial instability when we see it. further, as i have argued, there is no single best practice model for the design and allocation of decision - making powers. the obvious conclusion is that the pursuit of financial stability is a much more subtle and complex undertaking than the traditional monetary policy function of central banks. it necessarily involves not just quantitative frameworks, but detailed surveillance of risks guided by the perspective of historical experience. i expect these are things that central banks will be devoting increasing attention to in the years ahead. i want to finish by emphasising two elements that must be at the core of effective macroprudential policies, regardless of the institutional arrangements in a given country. the first is effective cooperation between those involved in traditional central bank activities and bank supervisors. combining these functions in an expanded central bank is not in itself a guarantee of effective coordination, though it may obviously help. key aspects include an effective flow of information across staff in the market operations and macroeconomic departments of a central bank and those working in the areas of financial stability and bank supervision. regular meetings among these groups to focus on risks and vulnerabilities and to highlight warning signs can be very valuable. a culture of coordination among these areas is very important in a crisis because, in many instances, a stress situation is first evident in liquidity strains visible to the central bank, and the first responses may be calls on central bank liquidity. the second element is effective bank supervision. by this i mean not just the standards and regulations but the capacity of supervisors to