For reasons of time, I would like to concentrate briefly on monetary policy in order to provide an example of the type of analysis which will be conducted, and is being conducted, also in other areas. There is now a broad consensus that the policy of very low interest rates, especially in real terms, which was followed in particular in the United States in the period 2002-04, increased the incentives for financial institutions, households and businesses to raise their levels of indebtedness and to take high-risk speculative positions. 1 In a recent paper, John Taylor illustrated that if the Federal Reserve had implemented a less expansionary monetary policy, and had instead followed a simple rule to determine interest rates, in line with past  1  J. Taylor (2009), Getting Off Track: How Government Actions and Interventions Caused, Prolonged, and Worsened the Financial Crisis, Hoover Institution Press. BIS Review 66/2009  1  behaviour, less liquidity would have accumulated at the global level. Clearly, this is an ex post evaluation. And it is too easy to lay the blame at the door of the US monetary authority. Looking back at the analyses conducted at the time, it can be seen that this policy met with the approval of the academic world, market analysts and political parties. Following the bursting of the technology bubble and 11 September, there was a general consensus that deflation represented the greatest risk and needed to be countered by strong and sustained monetary expansion.
To conclude the first part of my remarks, the crisis has revealed the need for economic policies, and monetary policy in particular, to have a largely medium-term orientation, rather than supporting the procyclical behaviour of agents. To this end, central banks must pay considerable attention to developments in the financial markets, both domestic and global, in order to identify potential imbalances and forestall their effect on monetary and financial stability. The analysis that I have just conducted with regard to monetary policy clearly needs to be extended to other policy areas, such as fiscal policy or financial regulation. It is essential to conduct an in-depth analysis of these subjects in order to fully understand which problems caused this crisis and how to rectify them in order to prevent them from happening again. An interesting aspect, in some ways worrying, is that despite the consensus that has developed with regard to the analysis of the past, and the causes of the crisis, there does not seem to be a great deal of willingness to incorporate the lessons learned into present and future behaviour. To paraphrase St Augustine, give economic policy-makers more chastity and continence, but not yet. It is this apparent contradiction that leads to the view that this level of analysis is insufficient. I believe that we need to ask an additional series of “why” questions in order to understand thoroughly what induced economic policy-makers to make certain choices. A traditional response to this question is the short-sightedness of politics, which also applies to economic policy.