8  All speeches are available online at www.bankofengland.co.uk/speeches  8  8  backed by a government indemnity . The Bank’s exposure then consists simply of an overnight loan to that subsidiary, matched against its primarily short-term liabilities (Table 2 illustrates this using the last published accounts), and the government has a natural hedge for its indemnity in that changes in interest rates have partly offsetting effects on the value of the indemnity and the cost of new debt issuance. The other task for the second line financial risk function is to ensure that there is adequate transparency for policymakers, government and the public over how the exposures can change over time, under different scenarios, so that future decisions are made with full information. That is done – as it has been since the onset of quantitative easing – through multiple channels, including periodic internal reports to the Bank’s Court and HM Treasury, and external analysis and data, including in the Bank’s Quarterly Bulletin and the 9  BEAPFF annual accounts. As of January 2017, the fund had generated about £ in net interest income, sufficient to cover the mark-to-market impact of a material increase in interest rates. Table 2: 2015/16 Bank of England and BEAPFF balance sheets  10  8  For more details, see the Bank of England Asset Purchase Facility Fund Limited Annual Report at http://www.bankofengland.co.uk/publications/Documents/other/markets/apf/boeapfannualreport1606.pdf. 9 Not including unrealised mark to market profits. Data available in Appendix A of https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/bulletins/publicsectorfinances/jan2017. 10 See http://www.bankofengland.co.uk/publications/Documents/annualreport/2016/boereport.pdf and http://www.bankofengland.co.uk/publications/Documents/other/markets/apf/boeapfannualreport1606.pdf.

Central banks instituted huge asset purchase programs and brought short-term interest rates to near zero—in some cases below zero—to stimulate economic recovery. The good news is that, for the most part, monetary policy did its job. Advanced economies have seen steady growth and significant declines in unemployment. But the recovery has been slow. And despite low unemployment, inflation rates have been running persistently below central banks’ goals. The Federal Reserve, like many central banks, has a goal of keeping inflation at 2 percent. In the pre-2008 era, inflation was a major concern for the public and central banks alike. And, while I will always be vigilant about inflation that’s too high, inflation that’s too low is now a more pressing problem. The experience of a slow recovery and persistently low inflation is a symptom of deeper problems afflicting advanced economies. Two changes, unrelated to the crisis, have been taking place, causing a shift in economic conditions and quietly shaping the trajectories of advanced economies. These are the “the facts” that have changed. Today I’m going to discuss them in more detail, and explore our options for dealing with the challenges they present. “The Facts” Shifts in demographics and productivity growth have fundamentally altered the economic environment in which we operate. 1/3  BIS central bankers' speeches  Starting with demographics, two changes have taken place: People are generally living longer, and population growth is slowing. Dwindling birth rates are bringing population growth to a standstill.