. arguably, this is more of a communication issue than one of actual policy, and less emphasis on the readiness to clean up after a sharp fall in asset prices might have been a preferable alternative. the international monetary fund ( 2009, chapter 3 ) has investigated the role of monetary policy in causing financial crises. a large number of countries and financial crises were included in the sample. the conclusion is that “ the stance of monetary policy has not generally been a good leading indicator of future house price busts … there is some association between loose monetary policy and house price rises in the years leading up to the current crisis in some countries, but loose monetary policy was not the main, systematic cause of the boom and consequent bust. ” further - more, the overall relationship between the stance of monetary policy and house - price appreciation across countries in the years before the current crisis is statistically insignificant and economically weak, and monetary policy differences explain only about 5 percent of the variability in house price appreciation across countries. 13 lessons for flexible inflation targeting what conclusions can we draw so far from the financial crisis about the conduct of monetary policy and any need to modify the framework of flexible inflation targeting? one obvious conclusion is that price stability is not enough to achieve financial stability ( carney 2009, white 2006 ). good flexible inflation targeting by itself does not achieve financial stability, if anyone ever believed that. specific policies and instruments are needed to ensure financial stability. another conclusion is that interest - rate policy is not enough to achieve financial stability. other instruments like supervision and regulation, including appropriate bank resolution regimes, should be the first choice for financial stability. in many countries, the responsibility for these instruments rests on authorities other than the central bank. generally, to the extent financial instability depends on specific distortions, good regulation should aim to attack these distortions as close to the source as possible. to counter the observed procyclicality of existing regulation, macro - prudential regulation that is contingent on the business cycle and financial indicators may need to be introduced to induce better financial stability. possible macro - prudential regulation includes variable capital, margin, and equity / loan requirements. as expressed by bean ( 2009 ), “ the best approach is likely to involve a portfolio of instruments ”. 14 more generally, what is the relation between financial stability and monetary policy? financial stability is an important objective of economic policy. a possible definition of financial stability is a situation when the financial system can fulfil its main functions

( of submitting payments, channelling saving into investment and providing risk sharing ) without disturbances that have kohn ( 2008 ), after extensive discussion, concludes that there is insufficient evidence that low interest rates would have contributed much to the house - price boom and that higher interest rates would have had much dampening effect on it. the relationship for the euro area countries is less weak, but for reasons explained by bernanke ( 2010 ) it is potentially overstated. nyberg ( 2010 ) provides more discussion of macroprudential regulation and regulation reform. significant social costs. i find it helpful to conceptually distinguish financial - stability policy from monetary policy. different economic policies and policy areas, such as fiscal policy, labor market policy, structural policies to improve competition, etc., can be distinguished according to their objectives, the policy instruments that are suitable for achieving the objectives, and the authority or authorities controlling the instruments and responsible for achieving the objectives. monetary policy in the form of flexible inflation targeting has the objective of stabilizing both inflation around the inflation target and resource utilization around a normal level. the suitable instruments are under normal circumstances the policy rate and communication, including possibly a published policy - rate path and a forecast of inflation and the real economy. in times of crisis, as we have seen during the current crisis, other more unconventional instruments can be used, such as fixed - rate lending at longer maturities, asset purchases and foreign - exchange intervention to prevent currency appreciation. the authority responsible for monetary policy is typically the central bank. financial - stability policy has the objective of maintaining or promoting financial stability. the available instruments are under normal circumstances supervision, regulation and financialstability reports with analyses and leading indicators that may provide early warnings of stability threats. in times of crisis, there are instruments such as lending of last resort, variable - rate lending at longer maturities, special resolution regimes for financial firms in trouble, government capital injections and so forth. the responsible authority or authorities vary across countries. in some countries it is the central bank, in other countries there is a separate financial supervisory authority, sometimes the responsibility is shared between different institutions. in sweden, the financial supervisory authority is responsible for supervision and regulation, the riksbank is responsible for lending of last resort to solvent banks and for promoting a safe and efficient payment system, while the national debt office is responsible for the resolution of failed banks. during times of crisis, these authorities cooperate closely with the ministry of finance. my point here