10  For example Australia, Canada, New Zealand. 2  BIS Review 46/2006  markets about the steady-state rate of inflation being targeted. In other words, a point target makes communication somewhat more straightforward. Of course, that is not the same as saying that we can guarantee to deliver inflation outturns consistently in line with the target over an economic cycle. Shocks, and even policy mistakes, will cause inflation to deviate from target. Explaining such deviations matters. Especially when being reappointed for a further term, MPC members are typically asked by the House of Commons’ Treasury Select Committee whether the MPC has made any big mistakes 11 . In response, we often talk about luck, diligence etc. But I think that the best test – perhaps the only important test – is whether medium-to-long-term inflation expectations have been dislodged from the target. In the UK, expectations have generally been in line with our target since the Bank was given operational independence. But as the recent slight tick up in some measures illustrates, we have to be constantly vigilant. By contrast, an uncomfortable amount of commentary – academic and in the media – proceeds as if that particular battle is won for all time; the ‘death of inflation’ school of thought. Indeed, seductively, these days ‘victory’ tends to be inscribed in to the economic models used by central banks as an input to their forecasts.
However, as Beck and Gros stressed in an article from 2012, with the rise of macro-prudential regulation as an additional tool, it is not clear whether price and financial stability still conflict with each other. 4  BIS central bankers’ speeches  Another disadvantage is that the reputation and/or the independence of the central bank might be undermined: if its decisions and actions in the area of supervision and resolution are perceived as wrong or suboptimal, this may negatively affect the credibility of the monetary policy, as it is conducted by the same institution. Moreover, the temptation of politicians to capture the central bank may rise, as it has much more power than in the case when its only mission is to deliver price stability. The various arrangements on assigning banking supervision also have a bearing on the design of the national macroprudential authority. Depending mainly on who conducts the supervision of banks, different institutional solutions are adequate for this authority: it may be represented by a committee or board comprising representatives of the relevant institutions, by the central bank or by another authority tasked with financial market supervision. Boards are in place or envisaged in 13 EU countries, the central bank is – or is projected to be – the national macroprudential authority in 13 other EU countries, whereas two opted for – or are considering – entrusting this role to the national supervisory authority.