for example, the central bank could commit, at the time when the policy rate reaches the elb, to maintain the policy rate at this level until inflation over the elb period has, on these risks could be exacerbated if households and businesses expect monetary policy to be insufficiently accommodative because of proximity to the elb. for related discussions, see reifschneider and williams ( 2000 ) ; adam and billi ( 2007 ) ; nakov ( 2008 ) ; and hills, nakata, and schmidt ( 2016 ). eggertsson and woodford ( 2003 ) provide an early discussion of how optimal monetary policy at the elb entails a commitment to reflate the price level during the subsequent economic expansion. nessen and vestin ( 2005 ) discuss the relationship between average inflation targeting and price - level targeting. there is a dearth of empirical evidence on strategies seeking to make up for inflation deviations. central banks that pursue an inflation goal generally seek to achieve a specific rate of inflation by some time horizon - typically a couple years ahead or over the “ medium run ” - - without regard to past inflation deviations. one exception is the reserve bank of australia, whose inflation goal is specified as a range of “ 2 - 3 per cent, on average, over the medium term ” and thus might embed some notion of history dependence. however, ruge - murcia ( 2014 ) argues that the drift in the price level in australia is comparable with the drifts observed in economies with purely forward - looking specification of the inflation goal. the only known historical example of price - level targeting occurred in sweden from 1931 to 1933 when the country abandoned the gold standard and attempted instead to maintain its price level. the temporary adoption of price - level targeting is credited with helping sweden avoid deflation, an outcome that contrasted with that in countries that stayed on the gold standard. see berg and jonung ( 1999 ). - 8average, run at the target rate. 18 other makeup strategies seek to reverse shortfalls in policy accommodation at the elb by keeping the policy rate lower for longer than otherwise would be the case. 19 in many models that incorporate the elb, these makeup strategies lead to better average performance on both legs of the dual mandate and thereby, viewed over time, provide no conflict between the dual - mandate goals. 20 the benefits of the makeup strategies rest heavily on households and firms believing in advance that the makeup will, in fact

as those that play out primarily in capital markets. rather, the premise is simply that disruptions originating in the capital market can be of consequence in their own right, and that they may be less amenable to being dealt with via financial regulation. in this regard, i am echoing a point made recently by feroli and others, who have emphasized the fragilities related to bond fund flows. 12 let me start by being clear on terminology : by the “ risk premium ” on an asset category, i mean the ex ante expected return, based on an objective statistical model, that an investor can anticipate earning on the asset in excess of that on short - term treasury bills. so i will use the words “ risk premium ” and “ expected return ” interchangeably in what follows. and, for the sake of concreteness, i will focus on two of these bond market risk premiums in particular : the so - called term premium, which is the expected excess return on longer - term treasury bonds relative to short - term bills, and the credit risk premium, which is the expected see borio and drehmann ( 2009 ). but here, too, one might argue that macroprudential tools that reach beyond the banking sector to target broad measures of household leverage might be more direct, if such tools were available. an example would be limits on the loan - to - value ratios of all mortgage loans, irrespective of whether they reside on bank balance sheets. a further difficulty lies in the real - time estimation of the underlying trend in the credit - to - gdp ratio and, hence, in the gap relative to trend. see edge and meisenzahl ( 2011 ). see feroli and others ( 2014 ). bis central bankers ’ speeches excess return on bonds with credit risk ( for example, corporate bonds, or asset - backed securities ) relative to safe treasury securities. with all of the rhetorical heat that gets generated about whether the federal reserve can or should try to spot bubbles, it is worth keeping some uncontroversial facts in mind. it is widely accepted among researchers in finance that there is an economically large amount of predictable variation in the risk premiums on a wide range of assets classes. 13 for example, cochrane and piazzesi document that the excess returns on longer - term treasury securities can be predicted one year ahead with a simple model that delivers an r - squared in excess of 40 percent. 14 analogously