However, in order to uphold confidence in, and support for, monetary policy it is important to give a detailed report of when such factors are taken into account. This is a strategy the Riksbank follows. So far, the Riksbank has not found reason to take account of what happens beyond the normal forecast horizon when formulating its monetary policy, although it does normally produce surveys of the economy for longer periods. However, I have argued on several occasions in 1999 and 2000 that there was reason to raise the instrumental rate, taking into account the effects in a longer term perspective. BIS Review 43/2002  3  Nevertheless, asset prices should not be included in the formulation of monetary policy targets. There is otherwise a risk that the central bank would counteract adjustments that were fundamentally motivated. This would reduce the efficiency of the resource allocation and probably subdue growth. Other measures In addition to price stability, most central banks have a responsibility for financial stability. According to a narrow definition, financial stability is equal to a lack of crises in systemically-important banks. The banks have important functions with regard to the payment system and the supply of capital. It is easy to see that without an efficient payment system and capital supply the economy would be unable to function. Monetary policy would have no effect in this situation.
This is because, in our view, money can directly influence output and inflation in particular due to monetary and financial frictions existing in the economy and also some stickiness in the price determination process. Those facts underpin the two pillar approach of the Eurosystem As you know, the Eurosystem’s monetary policy strategy is grounded on two pillars: economic analysis, on the one hand, and monetary analysis, on the other. A wide set of short-term indicators (economic analysis) are complemented by the longer-term determinants of inflation (monetary analysis). This setup is based on a premise and has one important implication. The premise is that even if money has no systematic and immediate influence on prices, it can provide valuable and specific information on future inflation, at time horizons stretching beyond those usually adopted for the construction of central bank inflation projections. Because of the long-term relation between money growth and inflation, money has leading-indicator properties on future price  BIS Review 108/2006  1  developments. One could make the case that this is only an "empirical argument". But, in Central Banking, empirical realities do matter much. One could also argue that other strategies - such as targeting the price level or an average level of inflation over the long run - would have the same stabilizing properties as looking at money growth. I do not disagree in theory. But it is not clear to me that those strategies would be easier to implement or have the same anchoring effect on inflation expectations.