The optimal monetary response to a rise in credit spreads in their model strictly involves a less-than-full compensatory reduction in the policy rate, but is likely to be close to Taylor’s recommendation for reasonable calibrations of the interest-elasticities of saving and borrowing. 5  Buiter and Panigirtzoglou (2001) also discuss other, more exotic, approaches. BIS Review 111/2010  9  substitutability to exploit, purchases by the central bank can push up asset values, which in turn boosts aggregate demand and encourages increased issuance of the assets whose prices have risen. This rationale for asset purchases – that relative asset supplies affect asset prices and returns – dates back to Tobin (1969) and Brunner and Meltzer (1972). The mechanism is, however, absent from the canonical New Keynesian/New Classical macroeconomic model. That is because of a property akin to Ricardian equivalence: private agents internalise the budgetary implications of the public sector’s asset acquisitions, so that any change in the risk to which the private sector is exposed through its asset holdings is exactly offset by a compensating change in the risk borne by the public sector and thus ultimately the taxpayer through the public sector budget constraint (Eggertsson and Woodford, 2003). While this is a striking result, it is relatively easy to think of reasons why it might not hold in practice: any of credit market imperfections, limited asset-market participation or plain myopia is potentially sufficient.
Opening remarks for the 13th edition of the Regional Seminar on Financial Stability Mugur Isărescu, Governor of the National Bank of Romania Bucharest, September 12, 2019  Ladies and gentlemen, good morning and welcome! This is the thirteenth edition of our international seminar on financial stability organized by the National Bank of Romania together with the International Monetary Fund. We would like to express our gratitude for the IMF’s constant involvement and support in the successful outcome of this international seminar. Traditionally, the seminar takes place at the NBR training center in Sinaia, an enchanting place at the foot of the mountains, where the effects of autumn on the vegetation can be admired. This year we have decided that the seminar is to be held in Bucharest, because these days Bucharest is the host of the International George Enescu Music Festival, which you will attend tonight. We are happy to welcome representatives from central banks in the region, from our Dutch-Belgian IMF Constituency, as well as academia and think tanks. Last year’s edition was about the lessons we drew after the global financial crisis from a macroprudential perspective, but throughout time, various topics have been addressed, as well, like: - resolution and financial intermediation; - macrostability and systemic risks; - macroprudential instruments and policy framework. Ladies and gentlemen, 1  The seminar makes every effort to put forward challenging topics and I hope this year’s edition is no exception.