Conversely, throughout this speech, more favourable outcomes are when GDP-at-risk is smaller / low. 11  All speeches are available online at www.bankofengland.co.uk/news/speeches  11  potentially important impacts on longer term trend growth, both because financial crises have permanent scarring effects and because promoting productive finance can improve longer run productivity. 3. Time horizon. The time horizon for FPC optimisation is longer than that of the MPC reflecting the longer duration of the financial cycle, the permanent impact of structural macroprudential policies, and long-run monetary neutrality. Whereas the impacts of macroprudential policy could easily extend out a decade; in practice, the relevant time horizon for monetary policy would rarely extend beyond 3-5 years. Taking these in turn. 1. Clarity of objectives A term-by-term comparison of the monetary loss function: 𝐻 ∗ )2 ]} min𝑇 ℒ𝑡 ≡ 𝐸𝑡 {∑ 𝛽 𝑖 [(𝜋𝑡+𝑖 − 𝜋 ∗ )2 + λ(𝑦𝑡+𝑖 − 𝑦𝑡+𝑖  {𝑟𝑡+𝑖 }𝑖=0  𝑖=𝑜  and the macroprudential loss function: 𝑇  min ℒ𝑡 ≡ 𝐸𝑡 {∑ 𝛽 𝑖 [𝑓(𝐺@𝑅𝑡+𝑖 ) − 𝜙𝑦𝑡+𝑖 ]} 𝜌𝑡  𝑖=0  underscores the greater uncertainty inherent in macroprudential policy. The monetary policymaker’s loss function is based on two clearly specified and observable variables – inflation and output. Monetary policy has a single, quantifiable inflation target, 𝜋 ∗ , and while potential output 𝑦𝑡∗ must be estimated, there are well-developed and reasonably robust methods to do so.
With due respect to our friends from the Pacific, I am very pleased to mention that these Games was a great success and an extraordinary achievement for our country and for all those who attended. I understand that some of you were very keen to hold this Seminar to coincide with the Games. But I guess the potential risk from a prudential supervisor’s view of losing participants during the two weeks of the Games may be considered critical and detrimental to achieving the objectives of our Seminar. That aside, the Central Bank of Samoa is very grateful for the opportunity to be co-hosting this years’ event with the Financial Stability Institute in Basel, Switzerland; the Pacific Financial Technical Assistance Centre in Suva; and the Association of Financial Supervisors of Pacific Countries. This Seminar is part of a continuing series of trainings which could only contribute towards enhancing and strengthening our capability as supervisors in the development of our economic and financial systems. This is indeed a great opportunity to learn and share issues of common interest, in particular, the potential risks and threats that could adversely affect the confidence in our banking and financial systems. As you all know, banks and non-bank financial institutions play a vital role in the economic development of any country. Therefore, there is strong public interest in maintaining the stability and financial soundness of these institutions. And recognizing such importance, central banks have been entrusted with the responsibility of not only licensing but supervising them as well.