, frequency and instruments – monetary and macro - prudential policy are different. but there are also important ways in which they have a mutual impact. in terms of objectives, they differ in the way their objectives can be quantified and achieved. price stability can be quite easily quantified, and actually has been for the ecb as a year - onyear increase in the harmonised index of consumer prices ( hicp ) for the euro area of below 2 % over the medium term. consequently, the central bank has to achieve its objective symmetrically : to avoid falling short of its price stability objective on either side. financial stability, by contrast, is about avoiding a tail event with high potential costs. given the binary nature of such events, this is much more difficult to capture quantitatively in terms of a value or a threshold. as a result, the financial stability objective has a more asymmetric nature. in terms of frequency, monetary policy tends to follow the business cycle, whereas macroprudential policy is related to the financial cycle. certainly, these cycles are not independent from one another. but the bis has calculated that the financial cycle in advanced economies has an average length of about 16 years, whereas business cycles tend to have a duration of 1 to 8 years. bis central bankers ’ speeches and in terms of instruments, the main tool of monetary policy is a set of key interest rates ( and i will abstract here from the conduct of non - standard monetary policy measures ). for macro - prudential policy, there are instruments related to the asset side of bank balance sheets, such as loan - to - value ratio ceilings and debt - to - income ceilings ; liquidity - related instruments such as liquidity coverage ratios and the net stable funding ratio ; and capitalrelated instruments such as the leverage ratio and the countercyclical capital buffer. yet despite these differences, the two policies undoubtedly have a strong mutual impact. the instruments deployed in one policy domain affect the objective of the other. or put differently, the two policies work through similar transmission processes, although not necessarily with the same intensity, as they have a bearing on the same economic variables. for instance, if macro - prudential authorities deploy a stricter loan - to - value ratio, this would curtail bank lending to some extent. this could in turn slow down investment and production, and possibly have some adverse impact on prices and inflation. as an example in the other direction, keeping monetary policy rates

no discretion : the primary mandate is to secure price stability. generally speaking, financial stability risks should be addressed through macro - prudential policies, especially now that we have the ssm. but there could be a situation where financial bis central bankers ’ speeches imbalances are broad - based across sectors and countries. macro - prudential policy instruments and the distribution of competences between the national and european level could be ineffective in addressing such area - wide imbalances. if the central bank decides that these imbalances could eventually threaten medium - term price stability, interest rate policies may be relevant. as federal reserve board member jeremy stein recently put it, the advantage of the policy rate tool in such circumstances is that it can “ get in all of the cracks and reach into corners of the market that supervision and regulation cannot reach ”. so there are some circumstances where a “ leaning against the wind ” approach would still be valid and helpful even under a properly working macro - prudential framework. but any such actions by the ecb would be based on our policy framework – that is, to fulfil our primary mandate of price stability over the medium - term. and let me stress that i am not referring here to the current situation : we do not see risks to financial stability stemming from the current low level of interest rates that would warrant policy action at the european level. moreover the medium - term outlook for inflation remains subdued. so, let me conclude by reiterating what i would see as the general principles for guiding the interplay between monetary and macro - prudential policies, when both functions are partly under one roof at the ecb. first, macro - prudential and monetary policy both have a systemic dimension, and macroprudential instruments affect monetary policy objectives and vice versa. this suggests that decision - making for monetary and macro - prudential policy should be more closely integrated than for micro - prudential policy. second, there should be close interaction on the level of policy analysis to exploit synergies and maximum information regarding risks to price and financial stability. third, for monetary policy, even with suitable macro - prudential frameworks in place, there always remain circumstances that could warrant leaning - against - the - wind policies. i now look forward to our discussion. bis central bankers ’ speeches