However, weighed against an overly conservative estimate for the natural rate of unemployment of 6%, it still represents a substantial policy loss – indeed, one that is higher than the policy loss from high inflation of 3%. Accordingly, these triggers remain quite conservatively tilted in favor of disciplined inflation performance over enhanced growth and employment, and it would not be unreasonable to consider an even lower unemployment threshold that would be enough progress to justify the start of policy tightening. There are other policies that could give clearer communications of our policy conditionality with respect to observable data. For example, I have previously discussed how statecontingent, price-level targeting would work in this regard.10 Another possibility might be to target the level of nominal GDP, with the goal of bringing it back to the growth trend that  9  Woodford, Michael. 2011. “Bernanke Should Clarify Policy and Sink QE3” Financial Times August 25, 2011. 10  See Evans, Charles. 2010. “Monetary Policy in a Low-Inflation Environment: Developing a State-Contingent Price-Level Target.” Remarks delivered at the Federal Reserve Bank of Boston’s 55th Economic Conference on October 16, 2010, in Boston, Mass. ; and 2010 Federal Reserve Bank of Chicago Annual Report: Monetary Policy Rules for Non-Traditional Times, available at: http://www.chicagofed.org/digital_assets/publications/annual_report/2010_annual_report.pdf  BIS central bankers’ speeches  7  existed before the recession. I think these kinds of policies are worth contemplating – they may provide useful monetary policy guidance during extraordinary circumstances such as we find ourselves in today.

The trigger policy I noted above and level-targeting policies may result in inflation running at rates that would make us uncomfortable during normal times. But we should not be afraid of such temporarily higher inflation results today. As I noted earlier, Ken Rogoff (1985) has written that in normal times, we may want conservative central bankers as institutional offsets to what would otherwise be inflationary biases in the monetary policy process. But these are not usual times – we are in the aftermath of a financial crisis with stubborn debt overhangs that are weighing on activity. And as Rogoff himself wrote in a recent piece in the Financial Times, higher inflation could aid the deleveraging process.11 To quote him: “Any inflation above 2 percent may seem anathema to those who still remember the anti-inflation wars of the 1970s and 1980s, but a once-in-75-year crisis calls for outside-the-box measures.” Conclusion Last year about this time economic conditions deteriorated to the point that we undertook discussions on how to provide further monetary accommodation – and we ended up with our second round of large scale asset purchases. Now, one year later, we again find ourselves with a weakened economic outlook and again trying to decide what further accommodation to provide. I’m sure everyone will agree that we seriously don’t want to be in this position again at this time next year. I believe that means we need to take strong action now. Thanks. 11  8  Rogoff, Kenneth S. 2011.