would adopt similar measures within such a short span of years. i have become painfully aware of the need to more closely study each of the countries ’ experiences over the past quarter - century, and to draw true lessons that could be applied to future policy conduct. relevant topics for discussion range widely from monetary policy to regulation and supervision, payment and settlement systems, and so on. in my remarks today, i will raise for more details, see the following. ahearne, alan, joseph gagnon, jane haltmaier, steve kamin, and others, “ preventing deflation : lessons from japan ’ s experience in the 1990s, ” international finance discussion papers, no. 729, board of governors of the federal reserve system, june 2002. for the deleveraging process after the bursting of bubbles, see masaaki shirakawa, “ deleveraging and growth : is the developed world following japan ’ s long and winding road?, ” lecture at the london school of economics and political science ( co - hosted by the asia research centre and sticerd, lse ), january 10, 2012. bis central bankers ’ speeches several points with particular focus on the role of the central bank in maintaining macroeconomic stability at each of three phases : before, during, and after the financial crisis. i. before the crisis : financial imbalances and monetary policy i would like to start from issues relevant in the periods preceding financial crises, focusing on the role of monetary policy. conventional wisdom tells us that price developments serve as a trigger for changes in monetary policy. in fact, without exception, central banks pay attention to output gaps and inflation expectations, which have an impact on future inflation developments. in retrospect, however, when we look back at how bubbles were formed and then developed into financial crises, the most significant imbalance that destabilized the macroeconomy emerged on the financial front instead of the price front. the financial imbalances took the form of a sharp and significant rise in asset prices and credit expansion associated with increased leveraging and maturity mismatches. financial imbalances ultimately created a tremendous shock to financial institutions and the financial system, and led to a sharp and significant contraction of economic activity. while such acute pains wore off as a result of aggressive policy measures taken by the governments and central banks after the crisis erupted, the chronic affliction of low growth associated with balance - sheet repair remains. this experience has revealed the fact that the

8 ). only the central bank is able to issue currency that private economic agents can accept without conditions. therefore, in a financial crisis where the credibility of counterparties is undermined, the role of the central bank becomes extremely important. in the midst of the crisis, it is crucial that financial institutions and investors manage the counterparty risk by controlling not only the amount of exposure at the end of the day but also that of intraday credit. in the past twenty years or so, it has been the role of the central bank, as a bank of banks, to make various efforts to improve the safety and efficiency of payment and settlement systems. such efforts have led to the introduction of real - time gross settlement, delivery versus payment, and simultaneous settlement of foreign exchange ( chart 9 ). without such efforts made by central banks, the lehman shock could have induced a complete termination of financial transactions. if i am asked what the most significant contribution by central banks is in terms of securing economic and financial stability in the past quarter of a century, i could point to their unceasing efforts to improve payment and settlement systems. iii. after the crisis : the effects and limits of aggressive monetary policy lastly i would like to discuss the role of monetary policy in the aftermath of the financial crisis – specifically, when the economy has overcome acute pains but still suffers from chronic affliction of low growth associated with balance - sheet repair ( chart 10 ). when taking monetary easing steps, it is essential to conduct a careful analysis of their intended benefits as well as unintended costs. while aggressive monetary easing is definitely needed after the bursting of bubbles, its side effects and limits should also be taken into consideration. although there is no universal conclusion to such cost and benefit analysis for monetary easing, as it depends on countries and phases, i would like to call attention to the following bis central bankers ’ speeches four aspects, which have not been paid sufficient attention in traditional arguments made before the recent crisis. 3 the first is the burden of balance - sheet repair. even with monetary easing, economic entities with excess debt neither increase expenditures nor embrace more risk taking until their debts are reduced to an appropriate level. monetary easing only mitigates pains associated with balance - sheet repair. moreover, employing this mitigator for a prolonged time comes with costs, as it reduces incentives to lessen excess debt and causes delays in balance - sheet repair, which ultimately is necessary for economic recovery. needless to say, the effect of low