Long enough for the international authorities to think they would get time to fix problems in the regulatory capital regime before they gave rise to serious problems (such as the zeroweighting of 364-day lines of credit, which underlay the profusion of bank-like conduits etc). Long enough for many to proceed on the basis that “it couldn’t happen” or, indeed even after it began, “wasn’t happening”. Long enough, crucially, for investors to get too used to elevated returns. Those returns came largely from two sources. The fall in risk-free rates, brought about by an ex ante imbalance of global savings and investment; and the fall in risk premia, which may in part have flowed from improved monetary policy regimes around the world. The ensuing Search for Yield can be thought of as asset managers and bankers wanting to sustain into the future the fabulous ex post returns “achieved” as asset prices rose. Its main engines were leverage, and maturity transformation. A cocktail that not only raised private risks for asset managers and lenders, but also systemic risks. The upshot has been a protracted, and not yet concluded, period of deleveraging. That, in the great scheme of things, relatively small US subprime mortgage delinquencies could set this off shows just how fragile the system had become. Structural changes in the financial system really matter As commentators struggle to make sense of this, a lot has been said about the “originate and distribute” model of financial intermediation. Three comments on that.

16 The pass-through of exchange rate changes through the supply chain into UK CPI inflation is a protracted process, indicative of rich pricing frictions in the market for imported  13  See the discussion in Greenslade, J, Millard, S and Peacock, C (2008), “How has globalisation affected inflation dynamics in the United Kingdom?”, Bank of England Quarterly Bulletin, Q3. Peacock and Baumann (2008) find evidence of a flattening of the UK Phillips Curve since the mid 1980s, conditional on treating the UK as a closed economy. When import prices are allowed to enter firms’ costs, however, the authors find no change in the Phillips curve slope comparing 1965-2007 and 1985-2007. Peacock, C and Baumann, U (2008), “Globalisation, import prices and inflation dynamics”, Bank of England Working Paper No. 359. Groen and Mumtaz (2008) likewise find little evidence in changes in the structural parameters of UK Phillips Curves. Groen, JJJ and Mumtaz, H (2008), “Investigating the structural stability of the Phillips Curve relationship”, Bank of England Working Paper No. 350. 14  Source: Richard Freeman (2006), ‘The Great Doubling: The Challenge of the New Global Labor Market http://scholar.harvard.edu/freeman/publications/great-doubling-challenge-new-global-labor-market. 15  These measures weight countries by their share of UK-imports, and demonstrate the negative price pressure facing the UK today from slack in our trading partners. 16  Gopinath, G (2015), “The International Price System”, mimeo at this Symposium. 4  BIS central bankers’ speeches  intermediate and final goods. These effects span the policy horizon, and therefore affect the appropriate stance of monetary policy.