. 2. we need to have policy buffers. having policy buffers to tackle covid - 19 type pandemics is difficult as they are rare events. the problem is that many countries had no monetary or fiscal space to tackle even small crisis. in south africa, we had the space to provide a sizable monetary policy stimulus unlike central banks in 1 / 2 bis - central bankers'speeches advanced economies which were stuck at the zero lower bound. but we had limited fiscal space due to the fiscal decisions in the post global financial crisis period. 3. inflation is bad. many governments, including ours, faced mass protests against high inflation ( and not high interest rates ) in the post crisis period. 4. borrowing in foreign currency during good times should trigger consideration regarding the ability to pay during bad times. in addition, the cyclicality of commodity revenues makes them an inappropriate source of continuous funding to meet short - term obligations ( interest payments on debt ). there are many other repeated lessons. the post crisis period poses many challenges for central banks from dealing with fiscal dominance effects to tackling climate change related risks. increasingly central banks are being asked to address problems that fall directly under the domain of government, without consideration under what conditions and how central banks are effective in achieving their goals. credibility and independence are critical in achieving our objectives. other critical elements include well defined and limited number of goals, effective tools to achieve these goals and finally, measurable success indicators and accountability. central bank credibility is directly linked to achieving the goals and being accountable. if you want for the south african reserve bank to address the unemployment crisis, then you need to give us the tools to address things such as high firing and hiring costs or the large number of unskilled workers. you would need to take them from other government departments. for us to be successful, we need to act independently without considering political issues. how many politicians would be happy with that? how would you hold us accountable if you give us multiple goals? another example is climate change. the three main drivers of the transition are relative price changes, technology developments and adoption, and infrastructure investment. the most effective tools to accelerate these drivers sit with government departments. people downplay the importance of financial and price stability for the effectiveness of structural policies. how much green investment do you think we will attract if our financial system is unstable, and we cannot guarantee real returns!? the focus of central banks should be to deliver on their core mandates and create the space for

stays near zero through late 2014 and then rises steadily back to the long - run value expected by most participants. while this path is consistent with the january and march statements, i hasten to add that both the assumed date of liftoff and the longer - run pace of tightening are merely illustrative and are not based on any internal fomc deliberations. 10 given this baseline, one can then employ the dynamics of one of the federal reserve ’ s economic models, the frb / us model, to solve for the optimal funds rate path subject to a particular loss function. 11 such a policy involves keeping the funds rate close to zero until late 2015. this highly accommodative policy path generates, according to the frb / us model, a notably faster reduction in unemployment than in the baseline outlook. in addition, the inflation rate runs close to the fomc ’ s longer - run goal of 2 percent over coming years. according to the specified loss function, and in my opinion, this economic outcome would be the assumption of perfect foresight or " certainty equivalence " is commonly used in practice but is not an intrinsic feature of optimal control techniques. indeed, the fully optimal policy under uncertainty involves the specification of a complete set of state - contingent policy paths. in these simulations, the federal reserve's balance sheet is assumed to evolve in accordance with the exit strategy principles that the fomc adopted at its june 2011 meeting. this procedure involves two steps. first, the frb / us model's projections of real activity, inflation, and interest rates are adjusted to replicate the baseline forecast values reported in figure 7. second, a search procedure is used to solve for the path of the federal funds rate that minimizes the value of a loss function. the loss function is equal to the cumulative sum from 2012 : q2 through 2025 : q4 of three factors – the ( discounted ) squared deviation of the unemployment rate from 5 – 1 / 2 percent, the squared deviation of overall pce inflation from 2 percent, and the squared quarterly change in the federal funds rate. the third term is added to damp quarter - to - quarter movements in interest rates. bis central bankers ’ speeches more desirable than the baseline. one reason this exercise generates a better outcome is because it assumes that the federal reserve ’ s inflation objective is fully credible – that is, all households and businesses fully understand the federal reserve ’ s goals and believe that policymakers will follow the optimal