the important policy variables : the probability of experiencing a crisis, the expected loss in output given a crisis occurs, the likely effectiveness of whatever policy tool is being considered in reducing both the probability of the crisis and the associated output loss, and the cost of the policy itself. analytical tools must also be capable of assessing policy leakages. the imf is doing good work in this field ( imf, 2013b ) and contributions from academia are increasing in number and comprehensiveness ( angelini et al., 2012 ; bianchi and mendoza, 2011 ; jeanne et al., 2013 ; munakata et al., 2013 ) but more needs to be done to construct the apparatus necessary for calculating, reliably, the full welfare implications of macroprudential policy. 7. could macroprudential policy have helped mitigate ireland ’ s financial crisis? the story of the irish crisis is, at this stage, well - known to most. let me simply point to three figures, to which policymakers, the public and banks themselves had access prior to the crisis : i. overall bank lending increased 178 per cent between 2002 and 2007 ii. at the same time, house prices increased 85 per cent and iii. commercial property prices increased 66 per cent based on these figures, it seems clear that alarm bells should have been ringing. what could macroprudential policy have done? allow me to focus on one, admittedly timevarying, measure. as of 1 january 2014 new european union legislation gives national authorities the right to demand that banks hold, in addition to all other capital, an additional counter - cyclical buffer up to 2. 5 per cent of risk - weighted assets. the primary aim of a counter - cyclical capital buffer is to ensure the banking system has enough capital to protect the financial system from periods of excess aggregate credit growth that are associated with the build - up of systemic risk. activation of the counter - cyclical capital buffer is typically guided by deviations of aggregate credit as a share of gdp from its long - term trend. this is often called the credit gap. threshold values of the credit gap are used to define the range of the gap at which the buffer should be deployed. if the gap is below the lower threshold, the counter - cyclical capital buffer is zero. if the gap is above the upper threshold the counter - cyclical capital buffer should be set at its maximum of 2. 5 per cent of risk - weighted assets. between the

the low nominal interest rate environment, debt servicing cost as a percentage of disposable income remained unchanged at a relatively low level of 6½ per cent. the monetary and credit aggregates have also been increasing at rates consistent with strong domestic demand. year - on - year growth in m3 picked up from 17, 1 per cent in june 2005 to 19, 9 per cent in july and 19, 0 per cent in august. total domestic credit extension grew by 18, 0 per cent in july and 18, 3 per cent in august. twelve - month growth in bank loans and advances to the private sector remained above 20 per cent, with increases in mortgage advances reaching 26 per cent in august. the latter reflects continued buoyancy in the housing market, although the rate of increase in house prices has fallen steadily since september 2004. strong domestic demand and high international crude oil prices have impacted on the current account of the balance of payments. although the deficit on the current account of the balance of payments as a percentage of gdp contracted to 3, 4 per cent in the second quarter of 2005, data for july and august indicate a possible widening of the trade deficit in the third quarter. the current account however remains financed by capital inflows, and the international liquidity position of the bank increased to a level of us $ 16, 1 billion at the end of september. world inflation is expected to be negatively affected by higher oil prices. the imf now predicts that world inflation in 2006 will average 3, 7 per cent, compared to the april forecast of 3, 1 per cent for the same period. nevertheless this is lower than the revised 3, 9 per cent average expected for 2005 and 2 / 3 indicates that world inflation appears to be well contained. world growth is expected to be sustained at a robust rate of 4, 3 per cent in 2006 although it has moderated somewhat since last year. not all developments have been negative from an inflation perspective. although inflation expectations have deteriorated moderately, there is no evidence that this has impacted on wage settlements. unit labour costs in the first half of this year increased at rates within the inflation target range, measuring 4, 6 per cent and 5, 3 per cent in the first two quarters of this year. the nominal effective exchange rate of the rand depreciated by 0, 3 per cent since the last meeting of the mpc, but it has been relatively stable over the period. the volatility that did occur was to a large extent