costs to central banks in emerging markets. these may include possible moral hazard from investors ’ expectations of being protected from losses in risk positions, increased uncertainty regarding policy measures, as well as damaged progress towards the attainment of price stability. see nikolsko - rzhevskyy, a. et al. ( 2014 ). “ deviations from rules - based policy and their effects, ” journal of economic dynamics and control, 49. this idea has been put forward by john b. taylor. see, for example, taylor j. b. ( 2015 ). “ getting back to a rules - based monetary strategy, ” speech given at the conference getting monetary policy back on track, organized by the shadow open market committee princeton club, march. see chen, q., et al. ( 2015 ). “ financial crisis, us unconventional monetary policy and international spillovers, ” bis working paper, 494, march. see hofmann, b. and b. bogdanova ( 2012 ). “ taylor rules and monetary policy : a global ‘ great deviation ’? ” bis quarterly review, september ; and pasricha, g. et al. ( 2015 ). “ domestic and multilateral effects of capital controls in emerging markets, ” ecb working paper 1844, august. bis central bankers ’ speeches in fact, in some cases, it has become clear that imbalances have largely resulted from misguided domestic policies, such as excessively stimulative fiscal and financial measures. thus, blaming problems on foreign lax monetary stances may have distracted countries from correcting internal fragilities in a timely way. a challenge in the current global scenario is for central banks to pursue price stability in the face of upcoming monetary normalization in the united states, while at the same time taking into consideration possible spillovers to the extent that they may have some bearing on achievement of their inflation targets. concluding remarks the recent global financial crisis has generated increasing demands on monetary policy. the top risk of overburdening monetary policy with possibly incompatible objectives is diminished credibility. hence, setting realistic expectations of what it can and cannot do is all the more important. the greatest contribution monetary policy can make to society is price stability. given the long - term neutrality of money, any attempt to use it to boost growth is by nature limited. with respect to financial stability, the best monetary policy can do is to avoid provoking problems, notably, by neglecting inflation control. monetary policy can obviously

ravi menon : getting in all the cracks or targeting the cracks? securing financial stability in the post - crisis era opening remarks by mr ravi menon, managing director of the monetary authority of singapore, at the asian monetary policy forum ( ampf ), singapore, 24 may 2014. * * * monetary policy at the crossroads professor tan chorh chuan, president of the national university of singapore, distinguished guests, ladies and gentlemen, good morning, and welcome to the inaugural asian monetary policy forum. thank you all for coming. i would like to particularly thank steve davis of chicago booth and bernie yeung of nus business school. it was your vision and tireless effort that made this forum possible. you have assembled here a dazzling array of eminent economists and respected practitioners to discuss and debate the most pressing questions in monetary policy today. one of these questions must be : what role should monetary policy play to help secure financial stability? for two decades before the global financial crisis, central bankers thought they had found the secret sauce of monetary policy. the recipe was simple – an independent central bank, a single target ( price stability ) and a single instrument ( the interest rate ). monetary policy was directed at achieving price and output stability, with the central bank ’ s reaction function well - characterised by the taylor rule on an ex - post basis. the recipe worked brilliantly. sustained price stability and steady economic growth were the order of the day. the result was the great moderation. indeed, monetary policy was getting boring. monetary policy was unencumbered by financial stability considerations. to be fair, central bankers were not unconcerned about financial stability. but financial stability was seen as the preserve of prudential regulation and supervision. academic thinking reinforced policy practice : the macroeconomic models central banks relied on did not map clear linkages between financial and real variables. economists warned that it was difficult to identify a financial bubble. how does one tell if the value of an asset reflected economic fundamentals or speculative fever? so, when faced with potential financial vulnerabilities, it was deemed better to clean up after a bubble had actually burst than to try to lean against suspected bubbles. but beneath the still waters of macroeconomic stability, deadly financial whirlpools were forming. financial imbalances built up steadily in the advanced economies from the mid - 1990s to mid - 2000s and culminated in the global financial crisis of 2008 / 2009. the crisis sent financial systems into a tailspin and plunged economies