These are extraordinary times for central banks. The wish that central bankers might become seen as useful, but boring, technocrats, rather like dentists, seems all too far from realisation. Let me start by reminding you that all the really serious financial crises have occurred in the aftermaths of periods of great economic success, and at times when inflation was not a serious issue, as, for example, in the United States in 1929, Japan in 1990/1 and almost everywhere in 2007/8. Before then, in the nineteenth century, crises often followed overexpansion on the basis of great technological breakthroughs, such as canals and railways, which had the effect of lowering prices. There are, indeed, good reasons, as Minsky has pointed out, why crises should follow overconfidence, as nemesis follows hubris.

The point of this, however, is to emphasise that successful control of goods and services inflation does not carry with it any assuredness of limiting, or even much mitigating, asset price bubbles and busts; and this would, I fear, remain so even if housing prices were to be correctly included in the inflation index, as should be done.

Achieving low and stable inflation does remain the priority, but it cannot be the be-all and end-all of a central bank's remit. This realisation has led to two different proposals. The first is to adjust central bank reaction functions so as to have them ‘lean against the wind’ of asset price bubbles and busts.