cleared and non - bis central bankers ’ speeches centrally cleared transactions. this is a key result from the calibrated general equilibrium model which shows that regulation with limited coverage is doomed to be ineffective due to leakages. notably, the potential for regulatory arbitrage in case of tools that only target specific markets is a central issue in macroprudential policy more generally. moreover, as i already noted, research shows that the fact that the federal reserve board had the limited power to only set time - varying margins on listed equities bought on margin, was an important reason for the limited effectiveness of regulation t in the decades after the great crash of 1929. the second key result is that setting minimum margins and haircut floors – on a broad scale – would limit the build - up of leverage and reduce the procyclicality of current margin and haircut setting practices. with minimum margins and haircuts, the same minimum quantitative requirements would apply over the financial cycle. basically, such a minimum floor assures conservative margins and haircuts, and would have prevented the very low baseline margin and haircut levels that we have seen before the global financial crisis. importantly, introducing minimum floors can also limit the need for market participants to raise margins and haircuts in a downturn, since the initial margin and haircut levels are already higher when the cycle turns. third, and finally, both the theoretical and empirical results suggest that allowing competent authorities to add time - varying add - ons on top of minimum margin and haircut requirements could have the potential to increase welfare even more than a minimum floor would. overall, the theoretical and empirical findings in the special feature support intervention powers for macroprudential authorities. taken together, the key message is that only a comprehensive regulation of margins and haircuts applied on several different types of securities or transactions can reduce the build - up of leverage and asset market volatility in an economically meaningful way. in practice, i envisage minimum margins and haircut floors on both centrally cleared and noncleared derivatives and sfts as an essential reform to enhance the resilience of the financial system. let me now step away from these analytical underpinnings and conclude with some thoughts on how to design and implement such macroprudential tools in practice, and the challenges we face. how to design and implement a macroprudential framework for margins and haircuts the existing evidence and experience in previous crises in my view presents

of rule be employed? the 1970s and early 1980s provided important real data and experience in the resolution of these questions. friedman and phelps had already long argued that there was no long - run trade - off and that attempts to reduce unemployment below some structural level by accepting higher inflation would simply result in accelerating inflation and no lasting gain on unemployment. the 1970s seemed to demonstrate that this was right. more strident derivatives of the chicago tradition, however, which insisted that there was not even any short - term trade - off, were found to be wide of the mark. money did seem to matter, since the big rise in inflation in the 1970s had been preceded by a large increase in money growth. a lot of people not only accepted that monetary quantities were the key thing to look at, but concluded that central banks had failed to control them, so that some sort of step away from unconstrained discretion towards monetary rules was advisable. as a result, targets for those quantities were adopted, including in australia. that was the language of discussion when i was a student and when i first started work at the reserve bank in 1980. 1 these days, we have inflation targeting, an arrangement that provides a measure of constrained discretion to the central bank within a medium - term framework. it emphasises the control of inflation over time, but does not seek to fine - tune inflation over short periods. that allows a reasonable accommodation for trends in economic activity and employment over periods of a year or two, about which the reserve bank is required to have concern by its charter as well as by common sense, but preserves the value of the currency over the long run. in the language of trade - offs, this system accepts there is a short - term growth / inflation trade - off, but also accepts there is no long - term one. inflation targeting does not ignore financial quantities, but does not elevate them to the status of an intermediate target and does not see them as an instrument. inflation targeting is not perfect and, on occasion, still leaves policy - makers with some quite difficult decisions to make. it is, however, the best system that has been devised as yet. the fiscal debate of the 1970s was dominated by the budget deficits of the period, and the need to reduce them. on contemporary figuring, the commonwealth ’ s budget deficit reached about 4 - 5 per cent of gdp in the middle years of the decade. using figures comparable to those in use today, which measure the underlying cash