in addressing the trilemma. in the technical sessions, the first session on “ conducting monetary policy post - crisis : challenges to transmission mechanism and operating framework ” focused on whether the framework of monetary policy needs to be re - designed in the light of lessons drawn from the crisis. leading the discussion, professor benjamin friedman drew attention to the interplay between financial stability and responsive monetary policy. he suggested that one has to look into the three building blocks of macroeconomic and financial policy - set, in order to prevent the recurrence of crisis. the three elements of the policy - set are : one, monetary policy centered on an active use of short - term interest rates ; two, an intermediation system built on banks and other deposit - type institutions with significantly leveraged balance sheets and three, asset markets characterised with open entry and free trading. prof. friedman articulated that if these policy mix sow the seeds of the crisis, there is a need to change the policy mix. bis central bankers ’ speeches professor eswar prasad argued that central banks need not be constrained by the orthodox one instrument one target framework but need to explicitly address the financial stability concerns. he argued that under more realistic conditions of imperfect markets and credit constrained consumers, flexible headline inflation targeting could be the optimal monetary policy framework. in the indian context, mr. deepak mohanty provided evidence that policy rate increases have a negative effect on output growth with a lag of two quarters and a moderating impact on inflation with a lag of three quarters and the overall impact on inflation persists through 8 – 10 quarters. summarising the first session, mr. h r khan, deputy governor emphasized that the orthodoxy that central banks should restrict themselves just to setting interest rates and not regulate or supervise financial markets has come under question since the financial crisis. dr. subir gokarn, deputy governor highlighted three important messages from the session : one, monetary policy framework should not be locked into single target, two, more flexibility in defining objectives and instruments is necessary, three, boundary conditions for policy environment keep changing, but transmission within the boundary conditions is what a central bank could aim at. the second session was devoted to the theme, “ impact of crisis on sovereign debt : implications for macro - economy and inter - linkages with other policies ”. in this session, frank smets suggested that large scale asset purchase programs can lower long term interest rates. but there is a risk that the central bank could lose its hard earned credibility

potentially affect the economic outlook. of course, it is too early to know what policy changes will be put in place or how their economic effects will unfold. while it is not my intention to opine on specific tax or spending proposals, i would point to the importance of improving the pace of longer - run 2 / 3 bis central bankers'speeches economic growth and raising american living standards with policies aimed at improving productivity. i would also hope that fiscal policy changes will be consistent with putting u. s. fiscal accounts on a sustainable trajectory. in any event, it is important to remember that fiscal policy is only one of the many factors that can influence the economic outlook and the appropriate course of monetary policy. overall, the fomc ’ s monetary policy decisions will be directed to the attainment of its congressionally mandated objectives of maximum employment and price stability. finally, the committee has continued its policy of reinvesting proceeds from maturing treasury securities and principal payments from agency debt and mortgage - backed securities. this policy, by keeping the committee ’ s holdings of longer - term securities at sizable levels, has helped maintain accommodative financial conditions. thank you. i would be pleased to take your questions. 3 / 3 bis central bankers'speeches