In addition to these buffers, the government responded swiftly once adverse shocks occurred especially with additional fiscal measures, including, soft loans for farmers and low-income earners and allowing travelling and shopping expenses to be tax deductible temporarily. So, what about 2017—when uncertainty appears to loom even larger than last year especially on the global front? Against the backdrop of improving global economy, risks to global growth continue to run high. The number one risk, in my assessment, is the direction of global trade and investments after the U.S. Presidential election. Yet there are others that cannot be ignored. These include China’s highly leveraged corporate debt problem and financial stability concerns, political developments in Europe, the deep-rooted problems in the European banking sector, and geopolitical risks in Northeast Asia and the South China Sea. All these factors could result in significant financial market volatility and easily derail the global economic recovery. Even so, I believe the Thai economy and the Thai financial system will remain resilient to withstand these challenges. As you have seen, the impacts of adverse external shocks on Thai financial markets have so far been limited, unlike many emerging market economies, thanks to our robust external position. We have international reserves greater than three times of short-term external debt. Compared with more than 30 percent on average in emerging markets in this region, foreign ownership of Thailand’s public sector bonds amounts to less than 9 percent1. Thailand is, therefore, relatively less prone to capital flight, should foreign investors change their sentiments and expectations.

Second, over the past decade, inflation in the United States has been below our 2 percent longerrun target most of the time, and a number of measures of inflation expectations have drifted down in recent years.3 It is important to note that these first two observations are closely connected, as emphasized in the paper with Thomas Mertens that I presented at last year’s Hoover conference. In a world of 1/3  BIS central bankers' speeches  low r-star and a lower bound on nominal interest rates, a standard inflation targeting approach can lead to inflation and inflation expectations that are anchored below the targeted level.4 Third, during the long economic recovery following the 2007–09 recession, we saw the unemployment rate reach 50-year lows without causing an undesired rise in inflation. Structural changes in the economy—and in particular the labor market—have greatly expanded the level of employment that can be maintained without creating inflationary pressures. But, changes like those are hard to see in real time, making estimates of the natural rate of unemployment or other barometers of the economy’s potential inherently uncertain and subject to change.5  Evolution in Our Thinking One clear lesson is the critical importance of formulating a policy approach that effectively and consistently keeps longer-run inflation expectations anchored at 2 percent. Perhaps the most notable change we announced to our framework was explicitly describing success in terms of achieving inflation that averages 2 percent over time.