This is less true for emerging markets, including Brazil, where central banks tended to keep a strong focus on financial stability even before the global financial crisis. In part, this reflects the fact that financial crises were relatively more common in emerging markets in the late 20th century. There was also an old and important academic and monetary policy debate in the decade leading up to the crisis on whether we should lean against a financial bubble or clean up after it has burst. However, the lack of consensus on this issue resulted, in practice, in a mostly laissez-faire policy stance. BIS central bankers’ speeches  1  Today, I think it is safe to say that there is general agreement that proactively maintaining financial stability, by taking appropriate action against the buildup of vulnerabilities, is a proper goal for central banks. The high cost of “cleaning up” after the global financial crisis will serve as a reminder against excessive complacency for some time to come. The current debate is about the policy tools for the goal of maintaining financial stability. Macroprudential policy is widely seen as the first line of defense against systemic risk, but there is still uncertainty about its effectiveness. There is also disagreement on whether monetary policy should take financial stability considerations into account at all. On this latter issue – the use of monetary policy to deflate potential financial bubbles – there are two views.
Since monetary policy primarily affects the economy through long-term real interest rates, and therefore through agents’ expectations for the future paths of the policy rate and of inflation, the end result would be more accommodative policy during the downturn than recommended under the IT regime. 2  BIS central bankers’ speeches  A more modest proposal was to keep the IT regime, but increase the targeted level of inflation. The crisis and the bubbly period that preceded it convinced many that the modern macroeconomy is more prone to shocks that previously believed, and therefore the 2% target level that prevailed in mature economies before the crisis was perhaps too low to keep the economy from repeatedly hitting the zero lower bound. My take on this debate is that, at the end of the day, inflation targeting emerged even stronger from the crisis. No major central banks abandoned inflation targeting, and some central banks that were not inflation-targeters adopted elements of the framework. There are several reasons for the resilience of the IT regime: •  Central banks found that inflation targets were actually helpful in explaining the need and the room for unconventional policy measures to the general public. •  Furthermore, inflation targets helped anchor inflation expectations, keeping deflation at bay despite the large output gaps prevalent at the height of the crisis. •  The proposed new monetary policy regimes suffer from a number of practical deficiencies. They are too complex for the general public to understand and follow.