a full counter - factual simulation. that is beyond the scope of this paper. as a shorthand, we can still do something simple but nevertheless informative about the way the world might have looked. this is done by simply redrawing the path of us banks ’ capital ratios on the assumption that the ccb had been in place. in particular, we can use the basel iii calibration of the link between the ccb and the credit gap to simulate a hypothetical path for us banks ’ capital ratios. such an exercise is essentially identical to the common practice of constructing taylor rules for monetary policy, as in chart 2. chart 4 draws the macro - prudential policy - implied path of us bank capital ratios. in deference to the architect of modern theories of credit - induced instability, let us call this the “ minsky rule ” [ minsky, 1986 ]. the path of the minsky rule is, in many respects, the mirrorimage of the taylor rule. it suggests that hypothetical us banks ’ capital ratios would have been systemically and significantly tighter than their actual path between 2000 and 2009. in bis central bankers ’ speeches other words, a tight macro - prudential stance would have counteracted the effects of a loose monetary policy stance. although it is impossible to know for certain, it seems plausible that having this extra degree of policy freedom would have helped stabilise the us economy and financial system. a tighter bank capital regime would have tended to slow pre - crisis credit growth, thus constraining the boom. and more capital in the us banking system would have helped protect the wider economy from the credit crunch that followed the bust. in short, the boombust cycles in us credit and gdp would have plausibly been somewhat less severe had us policy been ambidextrous. the euro - zone crisis as a second historical example, consider the behaviour of some euro - zone crisis countries. in the run - up to monetary union, monetary policy was loosened significantly in a number of the peripheral european countries whose interest rates converged on core euro - area countries. as chart 5 illustrates, between 1995 and 1999 interest rates fell by between 3 and 6 percentage points in ireland, spain and portugal. and in greece between 1995 and 2001, interest rates fell by a remarkable 16 percentage points. whether by coincidence or causality, what happened next in credit markets in these countries was dramatic. the credit gaps in each of spain, portugal, ireland and greece

krone back to its initial range over time. this illustrates the challenges of stabilising the exchange rate of a small, open, oil and commoditiesbased economy against that of larger, more diversified economies. though a much larger economy, the uk has also over time experienced problems with exchange rate targets, most recently the events that led sterling to leave the erm in 1992 and orient monetary policy towards an inflation target. the introduction of the euro from 1 january 1999 did not in itself require changes in norwegian monetary policy. the euro could replace the ecu as the operational indicator of the external value of the krone. however, last spring norges bank also reviewed the merits of a change in anchor currencies. norges bank found the potential benefits of changing the exchange rate target to a trade - weighted basket to be relatively marginal and fairly uncertain, and recommended that the government refrain from modifying the exchange rate regulation. in the revised national budget for 1998, the government affirmed this view and decided that the exchange rate regulation would continue to apply without any changes, with the euro replacing the ecu as the indicator of the krone ’ s value against european currencies. thus, the consequences of the introduction of the euro for the orientation of norwegian monetary policy might not appear particularly great at the outset. the launching of emu nevertheless entails changes in the environment for our monetary policy, for the following reasons among others : first, the european central bank formulates its monetary policy with the aim of maintaining low inflation for the euro area as a whole. euroland will be a more closed economy than the individual member countries used to be, and thus exchange - rate changes less important. this can result in larger exchange rate fluctuations between the major countries than in the past. if so, keeping the krone stable against the euro might become more challenging. second, the launch of the euro will reinforce global financial integration and contribute to higher capital mobility, and the establishment of an efficient payment and settlement system in euros reduces the cost of moving capital. increased mobility of capital, both in and out of countries, including norway, could follow. as i indicated earlier, we, like others, have experienced increasing difficulty in maintaining a stable exchange rate in a world of large, unrestricted capital flows. the relative calm within the euro area during the recent turmoil linked to the financial crises in asia and russia and later brazil could be indicative of future differences between europe ’ s “ ins ” and “ outs ”. finland,