But the financial crisis has reconnected everybody with the reality that the success of monetary policy depends on conditions it cannot create on its own. In particular, it is dependent on a stable financial system. And as the sovereign debt crisis has reminded us, sound fiscal policies remain as important as ever for monetary policy to be able to deliver price stability.
In recent years, however, academic progress has been made on all counts: with regard to the effects of unconventional monetary policy instruments, the principles of a stable financial system and of sound fiscal policies. And one additional insight is that, while the instruments for these three policy areas are different, the areas are nonetheless interdependent.