Ex post it would always seem attractive to create surprise inflation. More recently, research by Lars Svensson (1997), Michael Woodford (2003) and others has shown that even when  2  Strictly speaking, it is not clear that the Riksbank was what we would today recognise to be a central bank until considerably later. 2  BIS Review 5/2004  there is no inflation bias there can be a “stabilisation bias” from the exercise of discretionary monetary policy: one that would lead to a suboptimal combination of output and inflation variability. Those results have prompted a large volume of research exploring different ways in which the commitment to price stability could be made credible. And central banks themselves have devoted no less energy to establishing the importance of their credibility. Two very different approaches to the time-consistency problem have been discussed in the literature. One examines contractual relationships between the public and monetary decision-makers that reduce or eliminate the degree of inflation and stabilization biases resulting from discretionary policy. Examples include formal adoption of monetary policy rules, a contract between government and central bank instructing the latter to target price stability, the delegation of monetary policy to a conservative central banker, and investment in a reputation by current decision-makers. But those answers from the literature on rules versus discretion are not really solutions.
On the other hand, on May 26, the European Commission proposed the Member States to establish national funds, financed from taxes imposed on the financial sector, in order to assist in closing or reorganizing the unsuccessful banks. The macroprudent tools mentioned so far, do not by any means exhaust the list of suggestions. Exploring adequate instruments continues, and we are all waiting to see what will be delivered both in the form of ideas and in the form of operational tools. III. The crisis has proved that the price stability is not sufficient to achieve financial stability. 6  BIS Review 90/2010  Basically, with small exceptions that have no impact on the adoption of political decisions, the dangerous influence of the growing imbalances in the financial system was not conceived. The central banks were happy for registering low inflation rates, so it seemed to sidetrack the rapid credit growth; the lower risk aversion; the increase in asset prices, and consequently, the mounting vulnerability on the financial market. That is why, O. Blanchard and others, (2010) say that: “the crisis has made clear that policymakers have to watch many targets, including the composition of output, the behavior of asset prices, and the leverage of different agents. It has also made clear that they have potentially many more instruments at their disposal than they used before the crisis.