For instance, Norges Bank (2012) writes: “At the same time, interest rate setting should be robust and counter the buildup of financial imbalances in the economy.” The Reserve Bank of New Zealand (2012) has the following wording: “In addition, the PTA’s [Policy Targets Agreement] stronger focus on financial stability makes it clearer that it may be appropriate to use monetary policy to lean against the build-up of financial imbalances, if the Reserve Bank believes this could prevent a sharper economic cycle in the future.” The Bank of Canada (2012) makes it clear that these deliberations can imply that it takes longer for inflation to attain the target: “[A] tighter monetary policy that keeps inflation below target longer than usual could help to prevent excessive borrowing and a broader buildup of financial imbalances.”25 In countries where the housing market collapsed in connection with the financial crisis, and where housing prices have already fallen heavily, the deliberations have of course been somewhat different. There, the monetary policy discussion has mainly concerned ways to stimulate the economy and get out of the deep recession.
There could therefore be a point to following both these lines in the internal analyses. 13  Woodford (2012) illustrates this in a formal model analysis. 4  BIS central bankers’ speeches  imbalances – that leans against the wind – could be that it takes longer for inflation to attain the target than it would have if the central bank had not included financial imbalances in its deliberations. Although this policy can be justified in ensuring a good development in the longer-run perspective, in practice there are of course limits as to how much and for how long inflation can be allowed to deviate from the target. This has been a very important point in my own monetary policy deliberations and I will return to this at the end of my speech. The dividing line in the debate: how effective are the respective policy areas? Another important thing to note is that a monetary policy that leans against the wind is not intended to replace macroprudential policy measures. This could of course be necessary if there is no macroprudential policy in place or during a period when macroprudential policy is being organised. But once it is in place, macroprudential policy shall be the first line of defence against financial imbalances. This is definitely my opinion and as far as I can see it is shared by most of those participating in the debate, that is, even those who think that monetary policy should be able to lean against the wind.