Trying too hard to unstick interest rates, or doing so too quickly, also runs the risk of making a difficult situation worse. It runs 1937 risk. That is one reason why the glue holding interest rates to their floor has remained so strong. And it is why I feel no immediate need to loosen that glue. BIS central bankers’ speeches  11  References Barro, R (2005), ‘Rare Events and the Equity Premium’, NBER Working Paper No 11310, available here: http://www.nber.org/papers/w11310. Bernanke, B (2005), ‘The Global Savings Glut and US Current Account Deficit’, speech given at the Virginia Association of Economists, available at: http://www.federalreserve.gov/ boarddocs/speeches/2005/200503102/. Bunn, P and Rostom, M (forthcoming), ‘Household debt and spending in the United Kingdom’, Bank of England Working Paper. Caballero, R and Farhi, E (2014), ‘On the role of safe asset shortages in secular stagnation’, Chapter 9 in the VoxEU e-book ‘Secular Stagnation: Facts, Causes and Cures’ available here: http://www.voxeu.org/sites/default/files/Vox_secular_stagnation.pdf. Cogley, T and Sargent, T (2005), ‘The conquest of US inflation: Learning and robustness to model uncertainty’, Review of Economic Dynamics No 8 p528–563. Evans, C, Fisher, J, Gourio, F and Krane, S (2015), ‘Risk Management for Monetary Policy Near the Zero Lower Bound’, Brooking Papers on Economic Activity, available at: http://www.brookings.edu/~/media/Projects/BPEA/Spring-2015/2015a_evans.pdf. Friedman, M and Schwartz, A (1963), ‘A Monetary History of the United States, 1867–1960’, ISBN: 9780691003542. Galbraith, J (1954), ‘The Great Crash 1929’, ISBN: 978-0141038254. Gigerenzer, G (2004), ‘Dread Risk, September 11, and Fatal Traffic Accidents’, Psychological Science Vol 15 No 4.

That survey does not refer to a specific price index, so given that the average wedge between perceived inflation in the survey and actual CPI inflation is 1 percentage point, the proportion refers to the households that expect that inflation will be 3% or higher two years ahead. BIS central bankers’ speeches  9  risk derailing recovery by tightening and being unable then to course-correct. I have considerable sympathy with this risk-management approach. Table 3 provides an illustrative list of countries which have pursued the latter strategy – tightening during a post-crisis recovery and then course-correcting. The most celebrated (if that is the right word) was the Fed’s tightening in 1937. This is felt by many to have sent the US economy back into recession (Friedman and Schwartz (1963)). Almost 80 years on, the scars from that experience have yet to fade. The US experience in the 1930s was special, but not unique. In few of the cases in Table 3 did things go well. In each case the tightening was subsequently unwound. In a number of cases it had to be more than unwound due to its contractionary effects on the economy. Chart 19 shows the average path of output either side of the tightening. Most of these countries experienced several years of robust growth prior to the tightening, suggesting the economy was primed for lift-off. Yet when lift-off came, annual output growth weakened by around 2 percentage points in the following year, in the US by much more.