come to the fore of the international financial policy agenda only in the wake of the recent financial crisis and as a field of economic policy it is relatively untested ( bis, 2010 ). as a result, there is little consensus about best practise in this area and policymakers seeking to implement policy today face a wide range of difficult choices. first, in addressing a particular systemic risk, the macroprudential policymaker must choose to exercise either one or multiple policy instruments. the use of multiple instruments has the advantage of allowing the policymaker to tackle different aspects of the same risk. the disadvantage is that more instruments may mean more unintended consequences, through what is often called, regulatory leakage. recent research on uk banks ( aiyar et al., 2012 ), for instance, finds that regulated banks reduce lending, as expected, in response to tighter macroprudential capital requirements aimed at smoothing the credit cycle. however, unregulated banks increase lending in response to tighter capital requirements on a relevant reference group of regulated banks. this regulatory leakage is substantial. second, policymakers must choose between being either broad - based or targeted in their approach to systemic risk. targeting specific types of transactions, for example, may make the policy instruments more precise and potentially more effective, but raises the risk of avoidance. third, macroprudential policymakers must strike a balance between rules and discretion. as their names suggest, rules - based instruments are activated according to some triggering rule, informed by indicators of systemic risk. such rules act as a safeguard against forbearance and the policymaker ’ s inability to fully anticipate the timing and magnitude of policy effects ( friedman, 1948 ) and the reactions of market participants ( kydland and prescott, 1977 ). however, rules are difficult to design. furthermore, discretion allows policymakers to learn from observing the interaction between macroprudential policy, the financial system and the economy. imf ( 2013a ). bis central bankers ’ speeches fourth, policies may be fixed or may be calibrated over time. effective macroprudential policy involves some combination of both : ( i ) time - invariant regulations make it hard for systemic risk to build up ; and ( ii ) policies that are introduced or tightened when systemic risk is perceived as rising to dangerous levels ( figure 1 ). figure 1 macroprudential time - invariant and time - varying policy instruments 4. time - invariant versus time - varying rules

but adjustable exchange rates. in that statement he remarked : “ let me lay to rest the bugaboo of what is called devaluation ”. a bugaboo, according to merriam - webster is “ an imaginary object of fear ” or “ something that causes fear or distress out of proportion to its importance ”. well imaginary or not, the ending of the bretton woods system did have consequences. ( though the consequences did not include the one feared by my future father - in - law who had just heard a few days earlier of the engagement of his daughter to a boy with a job offer from the imf : would it survive? ). consequences there were : the closing of the gold window ( announced by nixon as temporary ) became permanent and was followed by a decade in which prices in the us doubled. and they almost doubled again in the following decade! so here is my lesson no. 2 : surprise announcements can have long - run effects. bis central bankers ’ speeches credibility and truthfulness of course statements around devaluations and the run - up to them have had a tendency to weaken the credibility of central bankers ( and other public officials ). take this quote from the irish finance minister reported in the irish times, thursday january 28, 1993 : “ i want to assure the people in london who are putting around the rumours that we are going to devalue today or tomorrow that they are wrong ”. true enough, no devaluation occurred on the thursday or friday … but it did on the saturday. although widely cited, former federal reserve board vice chairman alan blinder famously did not say “ the last duty of the central banker is to tell the public the truth ”. what he did do, it seems, was conduct a survey of central banker attitudes, “ in which officials had ranked ‘ a duty to be open and truthful with the public ’ last among criteria on why credibility was important ”. well, that ’ s even worse, though it ’ s not blinder ’ s view ; it was the view of many central bankers he surveyed in 1999. devaluation denials may have been an obvious reason for this, and it is perhaps unsurprising that regimes such as the disastrous erm, which create such pressures for disinformation, can be among the most ineffective. lesson no. 3 : central - banking - by - surprise makes candid communication extremely difficult. yet we all agree that credible communication is essential for lasting policy success