of markets and market practices which dictate the manner through which the interactions of feedbacks are propagated throughout the financial system ; and ( 3 ) the authorities ’ own responses. therefore, to address the problem, we need to focus our efforts on all of the three areas. first, on the collective behaviour of market participants, the key objective must be to tame or dampen the positive feedbacks through right incentives and better regulation. for example, regulation to disallow capital reduction for credit risk transfer off - balance sheet could have discouraged the originate - to - distribute model. second, on market infrastructure and practices, establishing central counterparty especially for otc transactions could have helped improve market infrastructure and lessen the risk of liquidity hoarding. and third, preapproved liquidity facilities by central bank, subject to certain prudential arrangements, for example, a satisfactory stress - test result, could also have helped central bank to inject liquidity more effectively and faster without creating a stigma issue to the requesting institution. and lastly, given all that has been said, how do we put all these together into a framework for policy. my tentative view is that, to be effective, a financial stability orientation policy has many crucial elements, with macroprudential being one of the components. to this end, an effective framework should include at least four policy pillars. the first is monetary policy, with a willingness for monetary policy to lean against the wind when the price stability objective of monetary policy is not compromised but there is a concern on financial stability. second is a strong supervisory framework with vigilant implementation. by “ strong ”, i mean adopting a strengthened risk - based framework for microprudential supervision with a vigilant implementation. this crisis, to me, is more a crisis of supervision than crisis of regulation. and third is the macroprudential oversight of which the key components should include a good process of macroprudential surveillance, an effective coordination between different supervisory agencies so that timely actions can be taken, and calibration of additional macroprudential overlays as needed, which can either take the form of measures implemented at an industry - wide level aimed at taming the credit cycle, or specific capital and liquidity buffers for selected systemically important institutions. and finally the fourth pillar is market development and central bank ’ s response to improve market efficiency, transparency, as well as the ability of central bank to response comprehensively to the emerging

and highest income quintiles increased to 2. 2 percentage points in october 2022, its highest level since 2006 ( slide 9, left - hand chart ). this inflation gap between poorer and richer households is mainly driven by relative price increases for energy and food ( slide 9, right - hand chart ). monetary policy can do little about such relative price changes. even tighter monetary policy, leading to lower headline inflation, would not have prevented such uneven effects across households. only governments have the mandate and tools to address distributional issues. as regards the second type of measure, governments must address the underlying sources of the supplyside shocks that are likely to affect the structure of the economy more persistently. this requires public investment and decisive structural reforms that foster potential growth and, at the same time, help to dampen inflationary pressure over the medium term by reducing supply - side constraints. in this regard, the next generation eu programme offers a historic opportunity. [ 12 ] disbursements under the recovery and resilience facility ( rrf ) are expected to stay at high levels over the coming years. a swift and efficient implementation of the key investment projects and reforms envisaged in the national plans under the rrf is key for boosting investment and potential growth. so far, governments have often not followed the above prescriptions. they focussed mainly on a combination of untargeted measures, fossil fuel subsidies and government consumption to soothe the damages inflicted by the energy crisis. only a small share of the temporary fiscal measures implemented to alleviate the burden of rising energy prices target low - income households ( slide 10, left - hand side ). rather than cutting taxes for vulnerable households or providing transfers to those in need, governments have mostly resorted to broad - based tax cuts or subsidies, or to outright energy price caps. in addition, many measures support short - run fossil fuel consumption, thereby working against efforts to move away from fossil energy sources. in terms of their budgetary impact, only 1 % of the total measures contribute directly to the green transition. tax cuts and subsidies for fossil fuels, unless properly designed, incentivise neither the efficient use of energy nor investment in energy - saving technology. moreover, public investment will remain subdued this year and next. it is only expected to pick up in 2024 and 2025, mainly reflecting increased defence spending, which helps to support our security, but has a low contribution to potential growth ( slide 10, right - hand side )