indicating that the threat to price stability from developments in macro economy and financial markets were largely absent. has the response of monetary policy to the crisis been appropriate? use of both conventional and unconventional policy was unprecedented in recent history. have these measures been effective? some would say but for these measures, another great depression would have become unavoidable. others, however, sustained weak growth and employment conditions as evidence of policy measures not paying off as yet. what are the lessons from the crisis for monetary policy framework? they are many. price stability does not ensure financial stability, and the costs of cleaning up after a financial crisis are very high. asset price bubbles potentially could be more risky than thought earlier, but direct monetary policy response may still have to be avoided. macroprudential tools may be more suitable for that. imbalances grow in good times, as during the great moderation, and preventing the build - up of imbalances in good times would require unpleasant timely policy actions. what constrains effective transmission of monetary policy? the effectiveness of conventional and unconventional measures has been constrained by the process of intense deleveraging in the advanced economies. deflationary headwinds and zero lower bound ( zlb ) for nominal rates are harder to deal with than demand induced inflationary pressures. the surfeit of liquidity in the global system has resulted in sharp increases in global commodity prices as well as capital flows induced asset prices in emes, exerting thereby inflationary pressures. emes face a different transmission challenge, when the inflation process is driven by supply shocks, to which interest rate actions may not be most appropriate. i hope i have provided you with the broad context behind the theme of this conference. governor subbarao will now take you through some specifics, laying out what is meant by trilemma, how it differs from the old trilemma, the various conflicts that might arise and how best we can attempt to manage these. bis central bankers ’ speeches

subir gokarn : the second international research conference – genesis, motivation and theme welcome remarks by dr subir gokarn, deputy governor of the reserve bank of india, at the second international research conference of the reserve bank of india, mumbai, 1 february 2012. * * * members of the central banking fraternity, participants from the financial, academic and media communities, other distinguished guests : on behalf of the reserve bank of india, let me welcome you all to this second international research conference. genesis of the conference the reserve bank of india ’ s first international research conference was held in 2010. in that year, the reserve bank, which commenced operations on april 1, 1935, entered its 75th year. a series of knowledge - sharing events such as seminars, special memorial lectures, outreach programmes were organised on this occasion, culminating in the first international research conference. the first conference focussed on “ challenges to central banking in the context of financial crisis ”. at the conference, two broad themes were covered. the first was the conduct of monetary policy during crisis, including financial stability as an objective and the second related to the challenges posed to the central banking, including that to regulation and supervision, by globalisation and market failures. five specific challenges were discussed, namely : ( a ) managing national monetary policy decisions in a globalizing environment, given the growing complexity in the interactions between external developments and domestic variables, ( b ) redefining the mandate of central banks, given the pre - crisis attraction of inflation targeting and the post - crisis debate on the role of central banks in relation to asset prices, ( c ) responsibility of central banks towards financial stability, particularly beyond the conventional lender of the last resort ( lolr ) function, ( d ) managing the costs and benefits of regulation, in view of the difficulty in drawing a fine balance between regulation and financial innovations, and ( e ) the autonomy and accountability of central banks, particularly during exit from the crisis. the conference had brought together central bankers, academicians, policy makers, financial regulators and supervisors and private sector experts to a common platform. there were very important lessons to take from that conference and that is why we are here to repeat it as a biennial event. in dealing with the crisis of 2008, while we deliberated on the pros and cons of each potential response at length, the uncertainty was large and risks were inherent in each of the actions we took. often, our judgments left us with a feeling that we were