tried to tackle this puzzle. the distinguishing feature of his paper is the fact that the allocation of risk across households is assumed to be socially optimal. this has implications for the interpretation of high returns in equity markets. all these new findings may help us to make progress in understanding financial markets and in finding a better theoretical framework to discuss financial stability. in this context, let me briefly reflect on whether or not financial stability should be an explicit central bank objective in line with its other objectives. the additional objective of financial stability is explicitly enshrined in many central bank charters. however, the question of how policymakers are to weigh the various objectives against each other is one that so far remains unsettled. 10 an undisputed case is the monetary policy reaction to financial instabilities that are significant enough to cause estimated good price inflation to deviate significantly from target. in this case no conflict arises. there also seems to be agreement on the rapid and resolute use of monetary policy in the case of extreme events which could threaten financial stability. 11 see gjedem, svein ( 2005 ), the macroprudential approach to financial stability, keynote address at the conference “ monetary policy and financial stability ” hosted by the oesterrreichische nationalbank, vienna, may 12, 2005 ; published : see ferguson, roger w. ( 2002 ), should financial stability be an explicit central bank objective? paper presented to an international monetary fund conference on challenges to central banking from globalized financial markets, washington, d. c., september 17, 2002. see gjedem, svein ( 2005 ), the macroprudential approach to financial stability, keynote address at the conference “ monetary policy and financial stability ” hosted by the oesterrreichische nationalbank, vienna, may 12, 2005 ; published : however, other cases are conceivable. think about evolving financial imbalances over a long period of time. how can and how should central banks react? the debate on “ asset prices and monetary policy ” remains open. in his dinner speech yesterday vice chairman roger w. ferguson discussed that issue. taking this one step further, there is the question of how to react in a financial crisis. as lawrence christiano et al have demonstrated, we need to construct more realistic general equilibrium models in the context of financial turbulence. i have already referred to two key elements these models should entail : heterogeneous agents and incomplete markets. charles god

shared responsibility. i am fully aware that none of us can precisely estimate today the economic consequences of what we all yet have to do in order to increase the resilience of financial systems. since this resilience is bound to be tested again harshly sooner or later, there is no alternative to rapid, serious, adequate and if necessary costly preparations by all of us. let me end by expressing my gratitude. i enjoyed contributing to the exchange of information, evaluations and views. this is the essence of the sibos conference. i am particularly grateful since i know that all of us in this room as well as those financial sector professionals who were unable to attend this conference, those of the private sector as well as those from the public sector, willingly share the noble responsibility for the efficiency and stability of today ’ s and tomorrow ’ s financial systems. thank you very much for your attention.