16  As Rogerson (1997) points out, there are different definitions of “the natural rate of unemployment”, but he convincingly claims that the only definition of equilibrium unemployment that is well-specified and unambiguous is the one corresponding to unemployment in steady state. Academic literature contains different definitions of short-run and time-varying equilibrium unemployment, such as short-run NAIRU (shortrun Non-Acceleration Inflation Rate of Unemployment – the rate of unemployment that will lead to a constant rate of inflation in the short run) and flexi-price unemployment (the rate of unemployment that would arise if prices and wages were flexible). These definitions are very dependent on models and not very robust, as they rely on such a large number of assumptions. Blanchard and Gali (2010) give some theoretical support for why monetary policy should be aimed at stabilising unemployment around a steady-state level, in addition to stabilising inflation around the inflation target. 6  BIS central bankers’ speeches  composition of the population. If these structural conditions change over time, the long-run sustainable rate of unemployment will also change. There is evidence that the labour market reforms, tax deductions for those who work and changes in the sick pay and unemployment insurance in recent years have contributed to reducing the long-run sustainable rate of unemployment (Swedish Ministry of Finance 2011, Sveriges Riksbank 2012a). As the long-run sustainable rate of unemployment is determined by the functioning of the economy and structural conditions, but is not directly observable, it must be estimated using various econometric and statistical methods.

It should be stressed that the most important efforts to implement the Core Principles are occurring in individual countries and, with this in mind, I am pleased to say that approximately 120 countries have now endorsed the Core Principles. Without the support and backing of national authorities to follow through with the implementation of these principles, our broader efforts simply cannot be effective. In this connection, the Basel Committee has long recognized the need for effective training of participants in the global supervision community, and over the years has sponsored numerous programs which have been beneficial in allowing supervisors from different countries to share experiences and exchange ideas for improved practices. In 1998, the Basel Committee, along with the Bank for International Settlements, jointly established the Financial Stability Institute, which conducts leadership seminars for supervisors in emerging market countries and facilitates technical assistance. Effort to revise the Basel Accord Let me move on to the Basel Committee’s initiative to revise the 1988 Capital Accord. As you well know, capital has been, and continues to be, an important supervisory tool. Since 1988, capital regulation has evolved around a set of minimum ratios that were devised by the Basel Committee on Banking Supervision and set forth in a document known as the Basel Accord. The Accord was, without question, a milestone achievement – for the first time, supervisors were able to use a common yardstick for assessing banks’ capital adequacy.