Ben Bernanke has advocated a temporary shift from inflation to price level targeting when policy rates reach their lower bound.36 Others have suggested moving from a point target to average inflation targeting. Both options would require policymakers to “make up” any period of low inflation arising from the constraints of the lower bound with higher inflation in future, increasing monetary stimulus. However, these strategies might work less well in open, than closed economies, particularly ones like the UK where exchange rate pass-through is large and protracted. The response of the exchange rate to shocks would likely push up inflation during downturns in domestic activity, leading make-up strategies to generate perverse policy prescriptions. See Evans, C, Fisher, J, Gourio, F and Krane, S (2015), 'Risk Management for Monetary Policy Near the Zero Lower Bound’, Brookings Papers on Economic Activity, Economic Studies Program, vol. 46(1), pp. 141-219. 36 See Bernanke, B et al, ibid. 35  24  All speeches are available online at www.bankofengland.co.uk/news/speeches  24  An alternative and more radical approach than developing tools to provide stimulus at the ELB is to make it less likely that policy rates need to reach it. Absent divine reflation, the most frequently discussed option is to raise the inflation target. In theory, once achieved, and if inflation expectations moved up smoothly consistent with the new target, then this framework change would reduce the frequency of hitting the ELB. However, like many ideas in economics, this works better in theory than practice.
Actually, the overall purpose of financial stability is the proper functioning of markets and to avoid having to arrive at these degrees of turbulence and dislocation. From the macroeconomic standpoint, risks must be overseen and signaled, because the primary  6  The Fed does not have an explicit financial stability objective, although its role in this matter is widely known. See, for example, Plosser (2007). 7  The idea is that investors could sell their shares at a given minimum price in the future, which is equivalent to a put option. 4  BIS Review 150/2008  objective is to prevent major crises. And if they do occur, every necessary measure must be taken to limit the damaging effects of their propagation. Two points are worth commenting here in the policy options menu, and which can be complementary to monetary policy decisions: one is the information that monetary and credit aggregates can provide, and the other is the role played by macro-prudential regulation. An asset price increase induced by rapid credit growth is a first sign that these assets may be overvalued and financial markets are taking excessive risks. This is particularly important in the case of real-estate, which frequently end up in a financial catastrophe. Monetary aggregates in general, but especially the wider money aggregates as well as credit aggregates may signal unsustainable tendencies.