The evolving – though by no means settled – consensus is that monetary policy is too blunt a tool to be routinely used to address cyclical risks to financial stability, and that moretargeted micro- and macroprudential tools should be used to address these risks. I agree that targeted prudential policies should be the first line of defense against threats to financial stability.
However, because their effectiveness in practice is not yet proven, I would not rule out the possibility that monetary policy could be used directly to support financial stability goals, at least on the margin. Identifying and addressing structural forms of systemic risk I want to turn now to structural sources of systemic risk and discuss how macroprudential policy can be used to mitigate them.