The greatest challenges we face are global. In addressing these challenges we should build on fundamental economic principles. The climate challenge is calling out for cost-effective solutions, nationally and globally. The liberalisation of global trade has brought undeniable benefits. But insufficient attention has been paid to the other side of the coin: Not everyone has shared in the benefits. The signs of growing protectionism are of concern. In a world facing common problems, going it alone is not the solution. If we all pull together, the burden becomes easier to bear. Come what may. 1 Bjerknes, V. (1943) “Hvordan Bergensskolen ble til” . In: Vervarslinga på Vestlandet 25 år. Festskrift utgitt i  anledning av 25-årsjubileet 1. juli 1943 [25 years of weather forecasting on the western coast. Festschrift published on the occasion of the 25th anniversary on 1 July 1943]. A.S. John Griegs boktrykkeri. Bergen. 2 Letter from Norges Bank to the Ministry of Finance, 1 December 2016. “The equity share in the benchmark index  for the Government Pension Fund Global”. 3 Report No. 2 to the Storting (1994–1995). Revised National Budget 1995, p. 68. 4 The calculations are based on Norges Bank (2016) “Asset allocation with government revenues and spending  commitments”. NBIM Discussion Note 4/2016. 5 Norges Bank (2017) “Experience with the monetary policy framework in Norway since 2001”. Norges Bank  Papers 1/2017. 9/9  BIS central bankers' speeches
This is especially the case when an important innovation occurs and market participants don’t fully appreciate the powerful feedback loops that first sustain a boom and then contribute to a bust when the process runs in reverse. This means that we as regulators must continually evaluate the financial system and monitor the landscape for new developments and innovations that, if taken too far, could lead to excess and put the system at risk. Second, when there are potential excesses that could threaten financial stability, we should look to temper them. For example, in the run-up to the financial crisis, macroprudential tools—such as requiring larger down payments or more closely evaluating the incomes of borrowers—could have been implemented to limit the demand for housing. If such an approach were successful, home prices would not have risen so dramatically, and the subsequent bust would have been less severe. Another approach would have required financial intermediaries to build stronger capital and liquidity buffers as protection against a housing bust and an economic downturn. Prior to the financial crisis, the conventional wisdom was that asset bubbles could not be identified in real time—rather, they could only be cleaned up after they burst. While there are significant challenges to identifying asset bubbles, it is clear that cleaning up only after they burst does not always work out well in practice. Third, we need to carefully monitor the incentives that govern the behavior of borrowers, savers, and financial intermediaries.