expectations are highly backward looking and / or if the economy is vulnerable to shocks generating negative correlation between output and inflation. 21 highly persistent a current example may concentrate the mind. what if it were thought that central banks might keep rates too low for too long from a price stability perspective in order to repair the banking system ( from a financial stability perspective ). rising inflation expectations and bond yields could undermine the recovery. walsh distinguishes between asset prices in normal and in bubble situations ( 2009, p. 32 ). a financial bubble and the policy response to it create the danger of yielding the reverse, i. e., short - term price stability but longer - term persistent deviations from the desired price path. see steinsson ( 2003 ). relative price shocks may also pose a problem for macro stabilization under price - level targeting. 22 any decision on the overall merits of price - level targeting must take all of these considerations into account. conclusion experience has shown that monetary and financial stability are more tightly bound than had been appreciated. price stability is a necessary, but not sufficient, condition for the stabilization of economic activity, and it must be supplemented by a robust macroprudential regulatory framework. this, in turn, will have consequences for the implementation of monetary policy. if these macroprudential tools prove insufficient to achieve financial stability, monetary policy faces a difficult trade - off between flexibility and credibility. as a consequence, authorities may wish to adjust the monetary policy objective to have the credible flexibility required to achieve both targets. price - level targeting offers one potential avenue for consideration. a formal assessment of the merits of price - level targeting will require the development of a framework that has a more realistic depiction of real - financial linkages than is embodied in the standard financial accelerator model. these models are still in their infancy, and their use to study the relative merits of inflation targeting and price - level targeting is the subject of ongoing research at the bank of canada. the financial stability aspect of the price - level versus inflation targeting debate is only one of many relevant dimensions. the bank has launched a multi - year research initiative that includes a comprehensive examination of the possible advantages of moving to a price - level target. 23 our efforts in this area are ongoing and we look forward to continuing to work with monetary policy experts, academics, and central bankers from across the world. carl walsh has made a valuable contribution to that debate today. references adrian, t. and h. s. shin. 2008. “ financial intermediaries

on risk management and investments in resilience. a key function of financial institutions is to help households and businesses manage the risks they face. financial institutions also have a responsibility to manage their own risks prudently so that they do not themselves become a source of uncertainty and instability. as canada's central bank, we have a role to play in mitigating and managing risks and uncertainty. our primary mandate is price stability - in other words, low, stable and predictable inflation. we also have mandates to foster a stable financial system and ensure safe and efficient payments. let me say a few words on financial stability and payments. and then i'll finish with some thoughts on monetary policy. our financial stability focus is on risks that could lead to system - wide stress. and we publish these findings in our annual financial stability report ( fsr ). 1 in our most recent fsr, published in may, we reported that canadian mortgage holders had experienced a modest increase in levels of financial stress. since then, we've observed that arrears on mortgages have continued to rise, although they remain below pre - pandemic levels. it also appears that these households have not leaned on revolving credit products such as lines of credit and credit cards to a greater degree than before the pandemic. but there is a notable increase in financial stress among borrowers without a mortgage, mainly renters. during the pandemic, for most credit products, the share of these borrowers missing payments reached historical lows. however, we're now seeing a larger share of these borrowers lagging behind on credit card and auto loan payments. over the past year the share of borrowers without a mortgage who carry a credit card balance of at least 90 % of their credit limit has continued to climb. and this share is now above typical historical levels. this is concerning. our responsibilities related to payments require us to adapt to increasing digitalization. innovation in payments continues to accelerate. in 2021, the bank assumed a new mandate for the supervision of retail payment service providers. starting november 1st of this year, more than 3, 000 service providers will need to register with the bank and follow new rules aimed at safeguarding consumers and protecting the integrity of retail payments. we are also looking at the bigger picture of payment innovation, both in canada and around the world. as part of this work, in the past few years we've built an extensive body of knowledge about the framework and technology behind