BIS Review 71/1998  -3-  •  Incentive effects. Incentive effects are always important in economics, generally complicating the analysis of policy measures. Nowhere is this as true as with international capital flows. One incentive problem involves what is known as moral hazard. Suppose national governments do intervene to protect the safety and soundness of banks.
Late last year, I noted that patience was an important and worthwhile virtue and that we should pursue a strategy of vigilance, remaining data-driven and maintaining optionality in our toolkit and acting when necessary.6 In my view, the disinflationary dynamics that the euro area has experienced over the last decade are very unlikely to return and we have now reached the point when we need to act.