##clical buffer unchanged at 1 percent. norges bank added, however, that if house prices continued to rise rapidly and credit growth increased, it would be appropriate to advise the ministry to raise the level of the countercyclical capital buffer effective from summer 2016. in my introduction, i posed a question : do reformed banking regulation and the new macroprudential instruments relieve monetary policy of any responsibility for financial stability? so let me conclude. while increased capital requirements and macroprudential policy can strengthen banks ’ solidity and mitigate the build - up of imbalances, we cannot proceed under the assumption that new regulations alone will eliminate the risk of financial instability. a robust monetary policy should therefore take into account the risk of a build - up of financial imbalances. monetary policy could then contribute to more stable economic developments over time. bis central bankers ’ speeches at the same time, monetary policy must not be overburdened. banking regulation and supervision must be the first line of defence against shocks to the financial system. when assessing the monetary policy trade - offs, central banks must pursue the primary objective of monetary policy – low and stable inflation. bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches bis central bankers ’ speeches

higher productivity growth may lay the basis for high corporate earnings, heightened optimism and reduced risk awareness. at the same time, with strong productivity growth, inflation remains low. banks that record low losses and solid results can increase lending without eroding their capital. debt - financed investments may then lead to a faster rise in property prices. third, strong international competition may contribute to curbing inflation during a period of strong economic expansion. given that a conflict between the two goals may arise ; how are financial stability considerations incorporated into monetary policy decisions? there seems to be widespread agreement among central banks, that extreme events which could threaten financial stability should be met by resolute use of monetary policy. for example, leading central banks made an effort to ensure continued liquidity in the markets in the aftermath of the terrorist attack on the world trade centre on september 11, 2001. as a consequence, the risks confronting the financial system were limited. however, risks to financial stability due to evolving financial imbalances are likely to develop over a long period of time. from this perspective, the question of whether financial stability considerations should be explicitly included in monetary policy is heavily debated, both in academia and within central banks. the answers diverge and international consensus has not yet been reached. one view is that an explicit and proactive monetary policy response to financial imbalances is neither desirable nor feasible. a number of concerns have been raised to explain this view. first, it is well documented that asset price bubbles and financial imbalances are very difficult to identify ex ante. second, the appropriate timing of a proactive monetary response is likely to be difficult to determine, given the lags in the impact of monetary policy. third, even in the case where the central bank knew that financial imbalances were building up, the size of the interest rate rise needed to reduce the imbalances might be so large that it could lead to a severe economic downturn. a more general concern is the potential moral hazard risk of a systematic proactive response of monetary policy to financial imbalances. for example, investors may “ undervalue ” the risks they take on if they expect that the central bank will act to offset future financial instability concerns. in later years, the idea of using monetary policy to prevent a build - up of financial imbalances has received increased attention. several central banks can be seen as supporters of taking into account the impact of financial imbalances on future output and inflation. the selected quotes