This paper was presented at the Federal Reserve Bank of Kansas City's Symposium on Monetary Policy and Uncertainty: Adapting to a Changing Economy at Jackson Hole, Wyoming on 28-30 August 2003. The views expressed are those of the authors and do not necessarily reflect those of the BIS

The successful pursuit of the objective of low inflation by central banks in recent decades has also delivered low variability of both inflation and output. At the same time, numerous financial and other "imbalances" (defined here as significant and sustained deviations from historical norms)...