When a large bubble collapses and severely damages the financial system, monetary policy has extremely limited effects, as we have seen in the current financial crisis. Furthermore, if the process of bubble formation involves "Greenspan Put"-type expectations among market participants, it may lead to excessive risk-taking activities.
Thus, the current financial crisis raises the extraordinarily difficult question of how central banks should conduct monetary policies to stabilize financial systems, and ultimately, economies. While it is very important that this be discussed in detail, I will refrain from doing so in my remarks today because I wish to highlight another important question regarding the design of financial systems.