varying extents of macroeconomic imbalances amid the exceptionally low interest rate environment in recent years. 5. to consider what may lie ahead for emes, it is perhaps useful to look back at past episodes of us monetary tightening. on the positive effects, fed rate hikes were mostly associated with a pick - up in us growth momentum which could benefit emes ’ exports, although we have observed that the strength of this support has weakened considerably after the global financial crisis. but, on the other hand, a tightening of us monetary policy and the resulting us dollar strength could expose the macroeconomic vulnerabilities of emes and potentially trigger financial instability. experience of the mexican peso crisis in 1994, the asian financial crisis in 1997, the brazilian currency crisis in 1999 and the argentine economic crisis in the early 2000s clearly indicates emes that had accumulated significant macro - financial imbalances could be vulnerable during a strong us dollar cycle. 6. in fact, broadly speaking, most instances of financial turbulence in emes could be considered to be some form of balance of payments crisis, which were usually preceded by heavy capital inflows to emes that led to the build - up of macroeconomic imbalances, such as asset price inflation, strong credit growth and current account balance deterioration. these problems were particularly serious in the past when some emes violated the “ impossible bis central bankers ’ speeches trinity ” by pursuing at the same time, a de facto dollar peg, free movement of capital and an independent monetary policy. these conditions tend to encourage an accumulation of significant short - term external debts in the emes. eventually, a combination of us rate hikes and strengthening us dollar generated momentum for capital outflows from the emes, exposing their fault lines and macroeconomic vulnerabilities as domestic liquidity conditions tightened. those with weak fundamentals and significant external imbalances could face speculative attacks, sharp currency depreciation, a surge in value of their us dollar denominated debts leading to a financial crisis. 7. would history necessarily repeat itself? some have rightly pointed out that the economic fundamentals of asian emes are now much more robust than two decades ago, with improved current account balances and better coverage of short - term external debts by sizable foreign reserves. and currency and maturity mismatch in foreign liabilities are no longer a serious issue. moreover, the more flexible exchange rate regimes adopted by many asian economies should give regional currencies more flexibility to

it is not controversial to say that supply price trends should influence monetary policy to the extent that they are part of the inflationary process. asset prices can be a leading indicator of price developments in other areas. they can reflect confidence in the future, both by households and by companies and thus affect inflation by influencing demand. household consumption is also dependent on wealth, which means that property and share prices are important when predicting inflation. share prices can also be a leading indicator for industrial production and investment. developments in the stock market influence the will to invest. with the guidelines followed by the riksbank, the question arises as to the significance of asset prices on inflation, primarily in the time perspective on which we focus, i. e. one to two years ahead. but it can also happen that asset prices are judged not to have such a significant impact in this time perspective, but to have an impact if one looks further ahead. for example, should inflation in two or three years'time be thought to be higher than desirable if it results from various factors driving up asset prices at the current time? if so, presumably this should be supported by other central inflation indicators, such as the overall utilisation of resources in the economy. if one is sufficiently convinced about this, there is, as i see it, an argument for taking action. but precisely as with the previous case involving deregulations, it is necessary to make a good case for deviating from the normal rule. it is also necessary to make clear what one stands to gain by acting now. this leads me to the question of what approach central banks should take to developments in asset prices which are not thought to immediately endanger price stability, but which risk leading to financial imbalances or real imbalances. there is no consensus on this in the academic literature. the prospect of intervening immediately poses the next question : how can we know if an asset is over - valued or not? if one does decide to act, a third question is raised : how can one burst the " bubble " in an organised way? listing these problems is usually sufficient to make many of my colleagues in the central bank world come to the conclusion that monetary policy should not be used to try to stabilise asset prices. my own opinion on this question is, however, somewhat different. in any case, it is reasonable to put the argument in a larger perspective. apart from price stability, the riksbank has the objective of promoting an efficient