believe, underscores the special ethical dimension of the financial sector in contrast to other businesses. banks and financial institutions have a greater responsibility of being conscious of the obligation they have of not jeopardizing the larger public interest. what mahatma gandhi said, that businesses hold public money in trust, is more true of the financial sector than others. ethical basis of economics the crisis has also triggered an interesting, if also a soul searching debate on whether the malaise that we have seen in the financial sector might in fact be a result of the flaws in the direction that economics, as an academic discipline, has taken over the years. some of you may have read in the papers that queen elizabeth visited the london school of economics a few weeks ago and reportedly asked the economists there, “ why did no one see the crisis coming? ”. the queen ’ s question is understandable given the growing claims of economics to hard predictive power like other exact sciences. over the last several decades, the direction of economics has been to position itself more like a natural science rather than the social science that it actually is. as lord skidelsky argued in a recent article in the financial times, economics tried to be more like physics with precise predictive abilities based on mathematical models rather than like sociology or psychology where the outcomes are determined by human behaviour and therefore beyond the pale of precise modelling and exact predictions. undoubtedly, the mathematical models helped economic analysis and aided in determining optimal solutions. the trouble though was that the mathematical abstractions got carried too far, and in the process economics lost its link with real life situations that it was expected to study and analyze. in other words, mathematical models became an end in themselves and assumed a life of their own. what does value orientation to an academic discipline mean? let me explain through two illustrations, one that may be considered to be in the realm of theory, and a more complex one all of us could run into in our professional lives. suppose you are given a problem in a test, say an accounting examination. you are asked not only to solve the problem, but also to comment on questions such as, “ was that way of accounting legal? ”, “ was it ethical? ”, “ was it chosen because it was convenient for the firm? ”. what will your take away be from such an exam? not just the technique of accounting, but the values that must underline accounting. problems in real life tend to be more complex, and reflect real behaviour

t fix all the economy ’ s problems. but monetary accommodation is indispensible. the economy would be in much worse shape if the fed weren ’ t acting so energetically. looking ahead, we may need to do more if the recovery falters or if inflation stays well below 2 percent. if the economy does need more stimulus, restarting our program of purchasing mortgage - backed securities would probably be the best course of action. the policy actions the fed takes will depend on how economic conditions develop. if circumstances change, our policies will adapt. no matter the circumstances, i assure you that we at the fed are doing everything we can to achieve the goals of maximum employment and stable prices. thank you very much. references board of governors of the federal reserve system. 2011. “ minutes of the federal open market committee ”, june 21 – 22. board of governors of the federal reserve system. 2012. “ press release ”, january 25. federal reserve bank of new york. 2010. “ quarterly report on household debt and credit ”, august. feroli, michael e., ethan s. harris, amir sufi, and kenneth d. west. 2012. “ housing, monetary policy, and the recovery ”. presentation to the 2012 u. s. monetary policy forum, new york, february 24. jorda, oscar, moritz schularick, and alan m. taylor. 2011. “ when credit bites back : leverage, business cycles, and crises ”. nber working paper 17621. mian, atif, kamalesh rao, and amir sufi. 2011. “ household balance sheets, consumption, and the economic slump ”. presentation at american economics association meetings, atlanta, ga, january 8, 2012. reinhart, carmen m., and kenneth s. rogoff. 2009. this time is different : eight centuries of financial folly. princeton, nj : princeton university press. for more information, see board of governors ( 2012 ). bis central bankers ’ speeches williams, john c. 2012. “ the federal reserve ’ s mandate and best practice monetary policy ”. presentation to the marian miner cook athenaeum, claremont mckenna college, february 13. bis central bankers ’ speeches