and gupta ( 2013 ), “ fed tapering and emerging markets ”, voxeu. org. for a review see smets, f., “ financial stability and monetary policy : how closely interlinked? ”, international journal of central banking, june 2014. bis central bankers ’ speeches an inherent conflict between those different objectives. only by opting for a “ financial stability - oriented monetary policy ”, the thinking goes, can such tensions be resolved – which would, in turn, support the achievement of both goals over a longer - term horizon. 12 i would agree that such conflicts between objectives are possible. as an example, consider a “ rigid ” inflation - targeting central bank that interprets any deviation from its price stability target as an immediate call to action, independently of the nature and persistence of the underlying shock. and suppose this central bank is faced with a sequence of positive costpush shocks that curb domestic price pressures for a prolonged period of time – for instance due to the gradual penetration of new technologies that boost productivity, or the emergence of new and cheaper sources of global production. the accelerating diffusion of the internet and related digital technologies in recent decades may provide an example of the former, while the emergence of china as a global manufacturing hub exemplifies the latter. 13 if the central bank is too narrowly focused on achieving a specific inflation target over a specific period of time, it will aim to reinvigorate price dynamics by running a looser monetary policy than would otherwise have been the case. but with that response, it may reinforce the exuberance that is already mushrooming with rising economic optimism. in these conditions, an overly loose monetary policy would fuel the financial cycle, which in turn may encourage a build - up of imbalances in the financial industry characterised by excessive dependence on unstable short - term funding, high levels of leverage, weak underwriting standards, and poor risk measurement and risk management. 14 this is more than just a hypothetical scenario : empirical evidence suggests that it has been the rule – rather than an exception – for stock market booms to coincide with atypically low inflation. the run - up to the dotcom bubble in the late 1990s, which dovetailed with the positive cost - push shocks described above, provides one particularly vivid example of this pattern. 15 in such cases, a misguided monetary policy reaction amplifies the impact of the initial supply shock and turns it into a demand shock with long run implications for price stability when

of the behavior and competition structures of banks. and central banks too, can admittedly also not escape this criticism. at the same time, however, central banks ’ role and position have risen since the crisis, given their energetic participation as lenders of last resort in the process of overcoming it, very different from during previous crises. however, there is also a heightened possibility now of a weakening of the central bank ’ s monetary policy credibility, due to conflict between its policy goals of financial system stability and price stability. in this context, as guardian of the financial system, the central bank is called upon by society to bear the responsibility for macroprudential regulation and policy, and to carry out the related tasks of analysis and examination. in this context, as i have previously noted, the most vital and difficult mission now confronting us is the efficient management of systemic risk. and for this purpose i see it necessary to operate more advanced forms of regulatory surveillance and macrofinancial stability policy, to secure a more diverse range of policy instruments for ensuring soundness, and to further strengthen both international cooperation and market discipline. the recent debate in the g20 and the bis on developing and introducing macroprudential policy instruments has now also been reinvigorated. notably, with regard to newly emerging market countries, that are relatively more exposed to excessive market risk and foreign currency liquidity risk than advanced countries, detailed evaluation is needed of the influences on their financial bis central bankers ’ speeches systems of introduction of the proposed new micro - and macroprudential regulatory tools. and attention must also be given to choosing the right combination of regulations that can bring about the largest synergy effects. as we have seen during the recent global financial crisis, the bankruptcy of huge financial conglomerates can potentially weaken the function of market competition – not only by heightening systemic risk, but also due to too big or connected to fail expectations and the consequent possibility of government bailout. the macroprudential framework should thus be designed from a wholistic perspective, to prevent side effects arising from possible structural changes in the financial market and to shore up the function of the financial system in the long run. i look forward to this conference hosting constructive and thorough discussions today and tomorrow on the meaning of macroprudential regulation and policy, on the tasks ahead, and on the role of the central bank in this regard. it will also be valuable if we can put our heads together to consider the impact of macroprude