that an aggressive taylor rule is not sufficient to determine inflation. the former authors suggest how price level determination can be achieved using a hybrid rule that augments an activist taylor rule with a commodity price peg. note though that their implementations implicitly require the cb to have the ability to buy back money from the public. if the cb can only hold assets issued by the fa, then the fa ’ s actions will influence the value of the cb ’ s portfolio and thereby influence the cb ’ s ability to implement a given price level path. in this sense, the cb does not have independent control of the price level. bis central bankers ’ speeches should the cb be required to never intervene in this sort of insolvency scenario? i ’ ve argued that a ban on these interventions will give the cb more independence in its control over the price level. for those who think of cb independence as being the foundational element of macroeconomic policy, that pretty much settles the question. but i see a couple of reasons for caution here. it is certainly conceivable that fa insolvency can be triggered by shocks that are well outside the control of the fa itself. and, empirically, fa insolvency is associated with large short - term and even medium - term declines in output. should the cb be prepared to drive the fa into insolvency given the possible adverse economic impact on the country? more subtly, regardless of the fa ’ s solvency, sovereign debt issues can fail simply through a coordination failure among investors. if i, as an investor, don ’ t anticipate that others will buy into the debt issue, i won ’ t either. in this sense, sovereign debt issues may be susceptible to suboptimal “ runs. ” the cb can eliminate this possibility by ensuring the nominal promises of the fa whenever the fa is threatened with default. thus, i see trade - offs. on the one hand, if the cb is known to be willing to intervene to keep the fa solvent, then inflation is necessarily shaped by fiscal considerations and by the shortrun incentives of elected officials. we know from many years of theoretical and empirical research that this effect is not a desirable one. on the other hand, if the cb is fully committed to allow the fa to default if necessary, then even optimal debt management by the fa may end up exposing the country to troubling risks, like sovereign debt runs. let me wrap up. i ’ ve argued that even

1061 – 74, august 2012 ; greg kaplan and sam schulhofer - wohl, “ understanding the long - run decline in interstate migration, ” federal reserve bank of minneapolis working paper 697, revised december 2013. see ralph s. j. koijen and motohiro yogo, “ the cost of financial frictions for life insurers, ” april 2013 ; ralph s. j. koijen and motohiro yogo, “ shadow insurance, ” november 2013. see estimates of the future behavior of asset prices. bis central bankers ’ speeches i ’ ve talked a lot about monetary policy and the supervision of financial institutions. but these are only two of the many public policy roles of reserve banks. let me briefly mention a couple more : the payments system and community development. reserve banks have recently formulated an ambitious strategic plan regarding their responsibilities in the payments system – the variety of mechanisms by which people and businesses transfer funds to one another. this strategic plan was informed in part by contributions from a large number of economists around the system who specialize in payments systems. in terms of community development, reserve banks engage in a number of activities to encourage private - sector investment in low - and moderate - income communities. microeconomic analysis underpins these activities in important ways. for example, in minneapolis, over the past dozen years, our community development function has worked closely with tribal representatives on initiatives to help native american tribes select and build a sound legal infrastructure that can support private business development in indian country. we are engaged in efforts to buttress this work by using microeconometric techniques to measure the impact of these legal infrastructure improvements on economic outcomes. i have argued that reserve banks need a wide range of skills and perspectives to fulfill their public policy missions. these considerations have helped inform the evolution of our research department in minneapolis in the past four plus years since i became president. in that time, we ’ ve greatly expanded the group, by hiring folks from top universities like stanford, penn and princeton, as well as from elsewhere in the federal reserve system. these new economists have skills in financial economics, labor economics, international economics, econometric forecasting and monetary economics. the department ’ s expansion has helped make the minneapolis fed even more agile and effective with respect to its public policy contributions, while maintaining its historical excellence with respect to independent research. but the skill diversity that i ’ ve been emphasizing is valued throughout the federal reserve system, not just in minneapolis. to