A combination of financial fragility and weak business and consumer confidence has weighed heavily on the Japanese economy, and on the Yen; and the financial thunderstorms, which broke initially last year over a number of other countries in Asia, are still intermittently rumbling around the region and elsewhere. The economic fallout from these developments poses a serious downside risk to the growth of world activity and threatens the emergence of potentially large international payments imbalances. It is a dangerous environment. All of this has prompted a far-reaching re-examination of the international monetary structure, and in the meantime it presents the international monetary authorities with some difficult immediate management challenges. It also, of course, represents an uncertain international background for the conduct of monetary policy in this country. Our own overall economic performance over the past year was again very encouraging. Output growth (on the latest data, to the first quarter of this year) was 2.9% significantly above the rate of inflation (measured by the GDP deflator) for the fourth time in the past five years - which I think is unprecedented in post-war British experience. On this basis over the past five years annual output growth has averaged some 3.1% while annual inflation has averaged 2.2%. And unemployment - on the conventional claimant count basis - fell further last year, to 4.8% on the latest figures, the lowest since the summer of 1980. The task, of course, is to sustain this pattern of relatively steady growth with low inflation into the medium and longer term.

29.11.18  Opening remarks 2nd Annual Meeting CEBRA International Finance and Macroeconomic Program Pablo Hernández de Cos Governor  Ladies and Gentlemen, It is a great pleasure for me to welcome you all to the second annual meeting of the CEBRA (Central Bank Research Association) International Finance and Macroeconomics Program, hosted by the Banco de España. Let me first thank our colleagues from CEBRA for their efforts in co-organising this conference. CEBRA is an association that seeks to encourage applied and theoretical research on relevant topics for central banks, among other institutions. Its research programmes foster interaction among researchers at central banks and in academia. In this vein, the International Finance and Macroeconomics Program (IFM) led by Galina Hale provides an excellent forum to discuss key policy questions that are also relevant to academia. The title of this conference is: “Risk, volatility and central bank policies”. Allow me to briefly share with you –from a central banker’s perspective– some of our current concerns in relation to the three items highlighted in this title. Starting with risks, in recent months some institutions – including the Banco de España through its Financial Stability Report – have stressed that, although the financial stability environment remains favourable, global near-term risks have increased or have begun to materialise. In recent years the global economy has experienced a period of sustained and across-theboard growth, supported by unprecedented expansionary and unconventional monetary policies around the world. But this context has also been conducive to the accumulation of certain financial vulnerabilities.