the economy ’ s capacity limits and lift inflation above the 2 per cent target, the bank would respond by raising the overnight rate. this would put upward pressure on other interest rates and the exchange rate, other things constant, dampening aggregate demand, eliminating the gap between actual and potential output, and stabilizing inflation to the 2 per cent target. the process would be reversed, of course, if demand were too weak and inflation seemed likely to fall below 2 per cent. the overnight rate would be reduced, boosting aggregate demand, narrowing the excess supply gap and lifting inflation. it is important to note that the bank takes a symmetric approach to the pursuit of its monetary policy objective, and is as concerned about undershooting the 2 per cent target as overshooting it. keeping actual output at or near potential is the only way inflation can be maintained at a low, stable and predictable level. establishing an explicit inflation target and consistently achieving it helps to build credibility, anchor the inflation expectations of businesses and households, and make monetary policy more effective. an explicit inflation target also provides a direct means by which the bank ’ s performance can be judged, thereby improving accountability. in exceptional circumstances, central banks have a number of other, unconventional, monetary policy tools at their disposal. they include quantitative easing, credit easing and conditional commitments concerning the path of future interest rates. these tools have been used by a number of central banks in the past four years as a means of providing additional monetary policy stimulus once the overnight interest rate approached zero and hit its effective lower bound. for more information, see the appendix of the bank ’ s april 2009 monetary policy report. bis central bankers ’ speeches this, then, is what the bank tries to achieve and how it goes about it – through the monetary policy transmission mechanism. life would be easy if, having achieved the target rate of inflation, we could just leave the overnight rate of interest where it was and let the economy motor on. in reality, of course, this is impossible. the economy is constantly being buffeted by shocks of varying size and duration from both internal and external sources. these shocks are difficult to anticipate ( if they were easy to foresee, they wouldn ’ t be called shocks ). indeed, it is often difficult to identify the nature and potential intensity of a shock until well after it has occurred. adding to the challenge is the fact that monetary policy operates on the economy with long and variable lags. adjustments to the policy rate that

##s, based on the fsb's key attributes, were established. just like cross - border cooperation between national regulators. the past has witnessed several cases where such a resolution framework has proven to be an effective safeguard for both depositors and financial stability. but at the same time, we haven't had many bank failures since the attributes were published. which, in a sense, makes every new case all the more different. and so, it makes it all the more important to draw lessons from this specific case. one lesson for sure is that it is essential to prepare more than one resolution strategy. different circumstances require different strategies. so we need flexibility. this becomes all the more important in case of a liquidity crisis – when a bail - in can help to restore investor and depositor confidence by strengthening the solvency of the bank, but can't generate additional liquidity. what credit suisse has taught us, is that we need to further explore resolution strategies that are better able to stabilise a bank's liquidity position. taking alfred nobel's advice, and observing and searching for differences and similarities, i can say that, today, we are in a very different situation compared to 2008. european banks have improved their capital positions and there is a structural change in the interest rate environment. and this is, in principle, good news for a bank's business model. the challenges of an artificially flat yield curve, negative interest rates, and fierce yield competition, have finally eased. but there are also similarities. today, too, risks are lurking around the corner and there are numerous vulnerabilities. risks related to funding costs and interest rate sensitivity, or credit - related risks. and vulnerabilities related to high levels of debt in many corners of our economy, or hidden leverage along with liquidity mismatches in the non - bank sector. 4 / 5 bis - central bankers'speeches this means that we need to remain vigilant. supervisors, obviously. but also the banking sector itself – making sure their capital positions, risk management and governance strengthen their resilience in sentiment - driven markets. so, yesterday was the dutch king's birthday. and if i am not mistaken, two days from now, on april 30th, his majesty king carl gustaf will celebrate his birthday. i'm sure that in between there must be some room for a dancing queen. congratulations in advance to all swedes here today. walpurgis