against that background, i should like briefly to review, without reaching firm conclusions on, four issues that feature in the recent literature. whether central banks should publish an expected ( optimal ) path for their policy rate. second, whether stabilisation policy is subject to a bias, meaning that a central bank will find it optimal not to deliver on promises and that, in consequence, its policies to offset shocks will be less effective than they could be if it could commit itself. third, whether stabilisation policy could be more effective if the central bank targeted a path for the price level rather than an inflation rate. and, fourth, how central banks should respond to asset price inflation. ( a ) should central banks publish an expected policy path? for a discussion of some implications of different loss functions, see vickers, j., 1998, ‘ inflation targeting in practice : the uk experience ’, bank of england quarterly bulletin, november, pages368 - 75. for example, tucker, p. m. w., speech at the national association of pension funds annual investment conference, march 2004, bank of england quarterly bulletin summer 2004, vol 44, number 2 ; and ‘ bank ’ s market man is ready for rate rises ’ p. m. w. tucker interview by d. smith, the sunday times 25 april 2004. amongst others, lars svensson 18 and michael woodford have argued that central banks should publish the path they expect for the policy rate or the near - term path of inflation they are aiming for. the norwegian and new zealand central banks have been publishing policyrate paths for a short while. 19 the bank of england does not. what do i – let me stress, personally – think about that? as others have pointed out, managing a scheme for voting by nine members on a path of rates would be pretty complex. proposals have been made ( eg for deriving a median path from individual members ’ paths ) 20, but they seem to entertain the possibility of shifting majorities for different parts of the resulting path ( or implied money market curve ). that may add an extra complication to explaining policy. indeed, more broadly, there would probably be a challenge in the area of communication. a single path for rates would, of course, be a misleading statement of the policymaker ’ s intentions ; of its ‘ reaction function ’. the path policy takes will depend, very obviously, on the shocks that hit the economy in the future. but not only on that.

for the financing of consumption and investment. thirdly, the deleveraging process to reduce the absurd excessive gearing ratios of some mega - sized financial institutions can only be accomplished by a reduction in world liquidity. taking account of the magnitude of the problem of over - leveraging as evidenced by the balance sheet information recently released for ltcm, this can become a major constraint on the availability of new funds in the global financial market over the next year. against this background, the world can only extricate itself from this complex problem by a coordinated effort applied from three different levels : firstly, many macroeconomic deficiencies were exposed in a number of countries that in the end suffered most from the global financial crisis. it is dangerous to generalise the shortcomings as they would obviously differ from country to country and would therefore also require specialised treatment suitable to the underlying situation in each one of the affected economies. a number of countries such as thailand, korea and the philippines have already addressed their problems with appropriate adjustment programmes, and are beginning to reap benefits from often painful corrective measures. these adjustments provide for more disclosure and transparency, enhanced financial regulation and supervision, recapitalising of banking institutions, more restrictive monetary and fiscal policies, exchange rate adjustments and improved governance in macroeconomic management in general. secondly, all the criticism against the multinational institutions, and particularly against the imf, is not without foundation. these institutions did not keep up with the accelerating process of financial globalisation in recent years, and with the rapid integration of world financial markets. economic policy models that may have been appropriate in the old system where central banks and governments could still exert strong influences on the direction of major financial aggregates such as interest and exchange rates and could effectively control changes in the money supply and in bank credit extension cannot be applied without adjustment in the new world where market forces now dominate the scene. some changes in the global financial system have become necessary and urgent. these institutions are now concentrating on increasing their resources, e. g. imf quotas, on improving their surveillance functions and on revising the “ architecture ” of their existing infrastructural frameworks. thirdly, after the ltcm affair, there is an urgent need for multinational banking and other financial institutions to revise their own internal risk control models. the action taken by malaysia recently to reintroduce exchange controls on international capital movements and the de facto default by russia in its inability to redeem its public debt