Also worth mentioning is Caruana, who pointed out in 2005 that, while a highly-developed decision-making framework was in place for pursuing monetary policy, financial stability was less deeply looked into. Let me add that, back in 2006, the key message of my dissertation at the University of Piteşti was that financial stability is, in turn, instrumental to monetary policy effectiveness and hence to safeguarding price stability. At the end of the day, it was the global crisis that invalidated once and for all certain elements of mainstream economics. Nothing new, as a matter of fact: economic thought has always been influenced and spurred by major crises. 8  BIS central bankers’ speeches  It became readily visible that threats to financial stability do not necessarily go away once inflation is brought down to a low level – they merely change their nature. And this has been shown at a global level by the “detail” (after all, “the devil is in the details”, as Professor John Bonin kindly reminded us from the very title of the presentation he delivered earlier) that the financial crisis broke out in an economic environment with relatively low inflation rates. In other words, the price stability that set in during the Great Moderation could not prevent the start of the Great Recession. Furthermore, the “mop up after” strategy in the aftermath of the financial crisis proved much costlier than “leaning against the wind” would have been.
Naturally, macroeconomic stability was and still is a necessary condition for the framework to operate properly. The crisis has led to a reexamination of some issues we thought were settled and to the emergence of some new questions. Even though Brazil was not at the epicenter of the crisis, we were affected by the crisis itself and by the policies that were put in place in its wake. Furthermore, we have been actively participating in the international central banking debate in order to offer our views and to learn from the experience of others. *  *  *  In my opening remarks, I will focus on three topics that have provoked particularly intense debate and that I believe will shape central banking for some time to come. In each of these topics, the global financial crisis prompted a rethinking that is still underway, although some initial conclusions can already be drawn. First, maintaining financial stability was reemphasized as a core function of central banks. Central banks have always been concerned with financial stability, particularly through their lender-of-last-resort role. But in many jurisdictions, central banks progressively downgraded the importance of the financial stability goal in the post-war period. The supervision of banks was progressively split off from central banking, and a gap emerged in that, in some jurisdictions, nobody was tasked with looking at the vulnerabilities in the system as a whole.