, in : econometrica, vol. 71, no. 1, pp. 173 - 204. brunnermeier, m. and l. h. pedersen ( 2009 ), “ market liquidity and funding liquidity ”, in : review of financial studies, vol. 22, no. 6, pp. 2201 - 2238. regulation ”. 4 the policy conclusions include both crisis prevention – with recommendations like the introduction of macro - prudential regulation or liquidity regulation – as well as crisis management with analyses of toxic asset purchases, asset guarantees or mortgage subsidies, for example. notwithstanding the important theoretical advances to which markus brunnermeier contributed substantially, there is still much to be learnt about the root causes, the triggers and the propagation mechanisms of the financial turmoil, and how precisely it spread to the real sector, causing a deep financial and economic crisis arising from negative feedback loops between the two sectors. the severe challenges for policymakers posed by the existing knowledge gaps are reflected in the very controversial debates about the optimal responses to mitigate and resolve the current crisis and to prevent future crises from occurring. quick progress on these and related research topics is essential for the ecb both from a monetary policy and a financial stability perspective. while at present the ecb already performs certain tasks which shall contribute to safeguarding the stability of the financial system, it is foreseen that the range of tasks and responsibilities of the ecb related to financial stability matters becomes substantially enlarged. according to the recent proposal by the european commission on the reform of financial supervision in the european union, drawing on the recommendations of the de laroisiere high - level group, the ecb would play an important role in a new european systemic risk council to be in charge of macroprudential financial supervision in the european union. for the ecb to effectively perform such tasks requires, among other, major investments into a supporting macro - prudential analytical infrastructure, for example the development and implementation of a suite of early warning signal models and the significant extension of existing macro stress testing models. but we also need innovative approaches on optimal policy responses once macro - prudential risks have been identified, since the european systemic risk council will also have to issue policy recommendations. in contrast to the assessment of systemic risks where we have a basis to build on and where our staff has also made research contributions to the literature, macro - prudential regulation or policy is a relatively new concept for which a

. the role of the krona for an inflation target policy as the krona has long come under focus, i would like to briefly remind you of the role the exchange rate plays in monetary policy. we have an inflation target, and the development of the krona has an effect on inflation, partly through import prices, partly through influencing demand for swedish goods and services. for instance, if the krona has a low value, demand and resource utilisation in the export industry increase. when we want to influence inflation, we do so primarily via the repo rate. occasionally, but in my view very rarely, we can also try to influence the exchange rate and thereby the inflation rate, through currency interventions. it is important to remember that we can never have a target for the value of the krona while monetary policy is directed at an inflation target. the monetary policy decisions are based on forward - looking assessments of the inflation rate. this means that the riksbank must make assessments of how the krona will develop in relation to other currencies during the forecast period, and assess what effect the development of the krona will have on demand for swedish goods, as well as the impact the krona will have on consumer prices. none of these assessments is simple. allow me first to point out the mechanisms that are important with regard to a direct impact on inflation via import prices. if the krona weakens and prices on the goods we import are determined in the exporter ’ s home country currency, the weaker krona will have a direct impact on import prices. for the weaker krona to have a full impact on prices of imported goods in the consumer channel, all domestic intermediaries must pass the price increases on to the end consumer. during the years with a floating exchange rate we have been able to note that the weakening of the krona has not had the impact on consumer prices that we had expected. one explanation could be that internationalisation and increased competition have first and foremost meant that the exporting companies endeavour to adapt their prices to developments on the markets where they sell, in order to retain their market share. it is reasonable to imagine that large corporations with sales and production spread around the world can act in this way without facing large fluctuations in profits. a german exporter selling goods both in the usa and in sweden could, for instance, have kept its profits up fairly well by determining its prices in dollars in the usa and in swedish kronor in sweden.