”, aea presidential speech, amercian economic review, vol lviii, no. 1. bordo, michael d. and david c. wheelock ( 1998 ), “ price stability and financial stability : the historical record ”, federal reserve bank of st. louis review, september / october. bis central bankers ’ speeches such perception was belied by the recent crisis ( gali, 2011 ). 6 it became clear that financial stability can be jeopardised even if there is price stability and macroeconomic stability ( subbarao, 2009 ). 7 consequently, post - crisis assessment increasingly veered towards explicit recognition of the financial stability objective. but there are unsettled issues and the jury is still out. first, should financial stability be considered as an explicit objective of the central bank or, more specifically, as an additional objective of monetary policy? it has been argued that central banks are not only the lenders of last resort, but also better equipped to look at both financial system and economic cycles. in this context, eichengreen, prasad and rajan ( 2011 ) suggest a dual mandate of price stability and financial stability so that “ monetary policy is recognised as a legitimate element of the macroprudential supervisor ’ s toolkit. ” 8 similarly, woodford ( 2012 ) argued that monetary policy might indeed lessen the severity of risks to financial stability. 9 gokarn ( 2010 ) was of the view that broader mandates for central banks will need to be made explicit and conditional on the priority of the core mandates. 10 in contrast, svensson ( 2010 ) argued that it was important to distinguish financial stability policy from monetary policy to avoid conceptual and practical confusion between the two policies. using monetary policy for the financial stability objective can lead to poor outcomes. 11 second, how compatible is inflation targeting framework with financial stability as an additional objective? the views are quite diverse. while some recommend eschewing of inflation targeting altogether, woodford ( 2012 ) suggested modifying inflation - targeting practice for making interest rate policy a more effective tool for financial stability. 12 in contrast, svensson ( 2010 ) opined that flexible inflation targeting remains the best - practice monetary policy before, during, and after the financial crisis. 13 third, should financial stability be the sole or shared responsibility of the central bank? a bis survey shows that in practice an overwhelming majority of central banks have either full or shared responsibility for financial stability, but the mandates are rarely explicit. 14 similarly,

cihak ( 2010 ) found that the remit for central bank ’ s role in financial stability was weaker than in the case of price stability. 15 the dominant view, however, seems to be that financial stability should be a shared responsibility, as monetary policy instruments of central banks can only have a partial impact on the ultimate objective of financial stability. fourth, do central banks have the instruments to ensure both price stability and financial stability? central banks functioning with a single instrument of short - term interest rate, gali, jordi ( 2011 ), “ monetary policy and rational asset price bubbles ”, barcelona gse working papers series no. 592. subbarao, d. ( 2009 ), “ financial stability : issues and challenges ”, rbi bulletin, october. eichengreen, barry, eswar prasad and raghuram rajan ( 2011 ), “ central banks need a bigger and bolder mandate ”, opinion, brookings institution, october. woodford, michael ( 2012 ), “ inflation targeting and financial stability ’, nber working paper 17967, national bureau of economic research. gokarn, subir ( 2011 ), “ monetary policy considerations after the crisis : practitioners ’ perspectives ”, rbi bulletin, january. svensson, lars e o ( 2010 ), “ monetary policy after the financial crisis ”, speech at the second international journal of central banking ( ijcb ) fall conference, tokyo, september. as in footnote 9. as in footnote 11. bank for international settlements ( 2009 ), issues in the governance of central banks, a report from the central bank governance group, www. bis. org / publ / othp04. htm. cihak, martin ( 2010 ), “ price stability, financial stability, and central bank independence ” 38th economics conference at the oesterreichische nationalbank, vienna. bis central bankers ’ speeches particularly those with inflation targeting framework may not be equipped to achieve multiple objectives following tinbergen ’ s assignment rule. 16 in this context, many have argued that interest rate is too blunt an instrument for dealing with overall financial stability issues ( for example, bernanke, 2011 ). 17 goodhart ( 2008 ) opined that many central banks with only one instrument of monetary policy may find these two objectives often conflicting with each other. 18 in contrast, it is argued that though identifying the bubble is difficult, and therefore a risky strategy, the cleaning up cost after the bubble burst