policy affects asset prices and credit, whose developments are crucial for financial stability, borio and zhu ( 2008 ) argue that such a channel exists. altunbas, gambacorta and marques - ibanez ( 2010 ), maddaloni and peydro ( 2010 ) find empirical evidence consistent with this channel. see woodford ( 2010 ), curdia and woodford ( 2010 ), and lambertini, mendicino and punzi ( 2011 ), among others. on the contrary, it is generally accepted that a flexible inflation targeting ( fit ) approach, if sufficiently forward looking, should ( perhaps informally ) take account of the fact that “ significant financial instability invariably will also have a significant impact on activity and inflation ” ( bean, 2003, p. 18 ). in practice, however, in the design of monetary policy actions it might be very difficult to take account of developments that are subject to considerable uncertainty and may materialize with long lags due to cumulative and non - linear effects of financial imbalances. since “ the real world is generally complex and non - linear, [ even ] within a well specified fit framework, the implicit monetary policy reaction function would then also be non - linear ( and possibly very complex, as it would not be possible to rely on certainty equivalence ) ” ( visco, 2003, p. 24 ), indeed, considering a taylor rule as a description of the normal conduct of monetary policy, i argued that for some purposes a linear rule with the interest rate expressed as a function also of asset price misalignments could be a simple and linear approximation ( a taylor “ approximation ”, after brook taylor the mathematician, within the taylor “ rule ” introduced by john taylor the economist! ) of how central banks would behave ( or perhaps should have behaved ) in a non - linear and complex environment. bis central bankers ’ speeches and the propensity to take risks. at the same time, macroprudential policies will likely react to, and affect, credit growth and asset prices, influencing the monetary policy transmission mechanism. these interactions need to be well understood and taken into account in formulating the two policies. two research projects recently carried out at the bank of italy have focused on the interaction between monetary policy and macroprudential policy. the first study concentrates on the recent housing bubble in the united states. 9 the results indicate that a tighter monetary policy by the fed between 2002 and 2006 would have not been sufficient to

- down planning long forgotten in many market economies, this point is easily overlooked nowadays, but it was surely another significant factor in those times. there was a golden age of financial accounts between the 1960s and the early 1970s. james tobin, among others, used them to look at the way agents allocate wealth across financial and non - financial assets ; in his nobel memorial lecture in 1981, he discussed ‘ money and finance in the macro - economic process ’ using flow - of - fund tables. tobin and others had built models based on the interaction between the real and the financial sectors. this idea was taken up by central banks. for instance, the 1986 version of the bank of italy quarterly econometric model contained a complete description of the links between saving, non - financial investments and financial flows. 4 financial accounts were also a rather popular subject for research. surveys of the literature list around 250 works on flows of funds published in twenty years or so after copeland ’ s book. 5 interest in financial accounts declined in the 1980s, only to pick up again after the crisis. many factors were at play : a growing focus on the micro foundations of macroeconomics ; an increasing concentration on inflation as a target, and on money and credit aggregates as instruments, for monetary policy ; some neglect of interconnections across the financial system ; and much trust ( too much, one would say in retrospect ) in the self - correcting mechanism of price adjustments, which implied less interest in the quantities ( flows and stocks ) that make up financial accounts. on the statistical front, the main effort then was directed at fuller international harmonisation of real statistics, which resulted in the 1993 system of national accounts ; at the same time, as i mentioned earlier, integrating real and financial accounts was proving elusive. on these issues see ando a. and f. modigliani ( 1975 ), ‘ some reflections on describing structures of financial sectors ’, in fromm g. and l. r. klein ( eds. ), the brookings model : perspective and recent developments, new york, north - holland. cohen, j. ( 1972 ), ‘ copeland ’ s moneyflows after twenty - five years : a survey ’, journal of economic literature, 1, march ; bain, a. d. ( 1973 ), ‘ surveys in applied economics : flow of funds analysis ’, the economic journal, december ; roe, a. r. ( 1973 ), ‘ the case for