jeanne ( 2002 ) argue one should think of this aspect in terms of an insurance. see issing ( 2002 ). see borio and lowe ( 2002 ) and borio, english and filardo ( 2003 ). see blinder ( 1999 ). “ new environment ” hypothesis in the following. the reasons suggested are that for quite some time inflationary pressure might not show up in inflation itself, due to a ) low pricing power of firms, b ) positive supply side developments and c ) well anchored low inflation expectations. it has been argued that central banks ’ focus on ( consumer ) price stability is insufficient and financial imbalances would have to be addressed directly. this direct response could consist of two parts. it would first involve trying to avoid ( or at least subdue ) the building up process of financial imbalances and second - if the former was unsuccessful ( or insufficient ) - to smooth the adverse consequences when imbalances are being unwound. policy implications i have at previous occasions already stated my doubts that price stability should be added to the list of causes triggering financial instability. i do not deny the fact that financial fragility can be significant in times of low inflation. but the latter statement that low inflation is not a sufficient condition for financial stability and the former that low inflation causes financial instability, are worlds apart. here i would like to focus on two particular aspects, which is the trade - off question with respect to the “ new environment ” hypothesis and the related relevance of the problems associated with identifying asset price bubbles. in the spirit of tinbergen if the central bank has one policy instrument, i. e. monetary policy, it can only achieve one independent goal, which is price stability. an intuitive division of labour is to assign the objective of financial stability to a financial regulatory authority, which sets up a prudential supervisory framework. this regulatory authority can but must not be the central bank. in this scenario with two authorities following one objective each, none of the authorities would be subject to a policy trade - off, as the number of instruments matches the number of objectives. nevertheless this reasoning cannot be used to exclude all conflict situations. in practice central banks ’ responsibilities concerning financial stability vary a lot. for example, no general financial stability objective can be derived from the treaty or the statute of the ecb. nevertheless the ecb has the task to contribute to policies pursued by the competent authorities relating to the stability of the financial system [ art. 105 (

debts, leading to a surge in government bond yields. it is necessary to take due account of the possibility that unconventional monetary easing will be associated with such unique side effects. c. points to keep in mind based on the summary i have just given, there are several points to keep in mind. first, as the transmission channels of the monetary policy effects overlap or are mutually related, it is quite difficult, if not impossible, to recognize each transmission channel separately or measure its quantitative effects. in particular, policymakers lack experience with respect to the effects and side effects of unconventional policy. and an economic situation that requires such a policy often occurs in the midst of severe and protracted economic stagnation following a financial crisis, in which firms and households have shouldered excessive debts. therefore, it could indeed be an economic environment in which a normal transmission mechanism cannot function properly. taking into account that there is limited experience with unconventional policy and such a policy is bound to face a difficult economic environment, it becomes crucial to make a comprehensive and deliberate judgment that requires vigilance for unexpected side effects, while referring to prior policy experience. second, in a financial and economic environment after the effects of unconventional monetary policy spread in a desirable way, interest rates will rise in a positive sense. when somewhat longer - term interest rates decline or risk premiums fall by way of accommodative monetary policy, funds ’ borrowers – for example, firms – can increase borrowing based on low interest rates, or can purchase many more capital goods by issuing new shares thanks to a rise in stock prices, thereby increase business fixed investment. as a result, economic activity and prices will rise. in the aggregate, stock prices will rise, and bond prices will fall and the interest rate will increase. as for investors, they feel discouraged by a decline in profitability due to the initial decline in interest rates, and they will try to sell low yield bonds and purchase other assets including stocks. as a result, asset prices including stock prices will increase and bonds will be sold and interest rates will rise. bis central bankers ’ speeches consequently, at the transmission channel in which monetary policy effects surface gradually and the economy grows steadily, it is natural that longer - term interest rates initially will fall and then rise in due course. on the contrary, if longer - term interest rates remain low, this would imply prolonged low growth, given that inflation expectations are unchanged. as a footnote, let me point out that one needs to be careful in