have blurred the distinction between monetary policy, credit policy, and fiscal policy. these steps were undertaken with the sincere belief that they were absolutely necessary to address the challenges posed by the financial crisis. for example, the fed established credit facilities to support particular asset classes, such as commercial paper and asset - backed securities. in november 2008, the fed announced it would begin purchasing housing agency mortgage - backed securities and agency debt to increase the availability and reduce the cost of credit in the housing sector. when the fed engages in targeted credit programs that seek to alter the allocation of credit across markets, i believe it is engaging in fiscal policy and has breached the traditional boundaries established between the fiscal authorities and the central bank. indeed, some of these actions have generated pointed criticisms of the fed. i view the breakdown of the traditional institutional arrangements as dangerous and fraught with longer - term risks. while it is popular to view such blurring of the boundaries as appropriate “ cooperation ” or “ coordination ” between the monetary and fiscal authorities, the boundaries were established for good reasons and we ignore them at our own peril. restoring the boundaries once a central bank ventures into fiscal policy, it is likely to find itself under increasing pressure from the private sector, financial markets, or the government to use its balance sheet to substitute for other fiscal decisions. such actions by a central bank can create their own form of moral hazard, as markets and governments come to see central banks as instruments of fiscal policy, thus undermining incentives for fiscal discipline. this pressure can threaten the central bank ’ s independence in conducting monetary policy and thereby undermine monetary policy ’ s effectiveness in achieving its mandate. i have long argued for a bright line between monetary policy and fiscal policy, for the independence of the central bank, and for the central bank to have clear and transparent objectives. i have also stressed the importance of a systematic approach to monetary policy that serves to limit discretionary actions by the central bank. at this conference three years ago, i argued for a new accord between the treasury and the central bank that would bis central bankers ’ speeches severely limit, if not eliminate, the ability of the central bank to lend to private individuals and firms outside of the discount window mechanisms. 7 i argued that decisions to grant subsidies to particular market segments should rest with the fiscal authorities – in the u. s., this means the congress and the treasury department – and not with the central bank. thus, i proposed that the new accord limit the fed to an all -

as well as a policy path that yields the best economic outcomes based on that model of the economy. bis central bankers ’ speeches unfortunately, we don ’ t live in such a world. monetary policymaking is often conducted by committee, and divergent views can and often do exist. while this can be clumsy at times, such governance mechanisms ensure that various views are heard. this promotes better decisions and outcomes and helps preserve central bank independence and accountability. thus, it may be difficult for a large committee like the fomc to achieve a consensus forecast or policy path. yet, we can enhance our communication by indicating the likely behavior of interest rates based on a few different taylor - like rules that have been consistent with the conduct of monetary policy. doing so would require agreement on a particular model in order to produce the resulting rule - based behavior. for the fed, the economic model called frb / us, which was developed by the board ’ s staff, seems like a reasonable place to start. such an exercise could also be enhanced, i believe, by using some of the dynamic stochastic general equilibrium, or dsge, models that have been developed within the federal reserve system. the fomc could then articulate whether and why it anticipates policy to be somewhat more restrained or more accommodative, relative to the projections given by the rules. the current monetary policy report that the fed delivers each february and july could be adapted to include those exercises as well as a discussion of the opinions of committee members regarding the results. it is important that in performing this exercise we illustrate the various dimensions of uncertainty that policymakers face. for example, there is model uncertainty, forecast uncertainty, and the variations implied by different rules. many central banks use fan charts and other devices to highlight such uncertainty, and we, the fed, would be wise to do the same. even acknowledging the uncertainty, the exercise will provide a better sense of the likely direction of policy and the variables most related systematically to that policy. i believe these steps toward greater transparency and communication would be significant progress, and would encourage the fomc to conduct policy in a more systematic manner. i believe this would lead to better economic outcomes over the longer run. bis central bankers ’ speeches