they do not have any u. s. investors. but fatca paints with a very broad brush. the legislation is structured so that all accounts will be deemed non - compliant or „ recalcitrant [UNK] unless the institution can demonstrate it undertook a rigorous due diligence process to prove it has no u. s. account holders. otherwise the 30 percent withholding tax will be applied. moreover, correspondent banks everywhere may refuse to deal with a financial institution unless that institution can show it is fatca compliant. potential impact of fatca ladies and gentlemen, fatca has the potential to affect every person or entity that has any interest in u. s. assets – in either capital value or income arising from these assets. american citizens abroad ( aca ), a geneva - based organization representing the interests of six million americans living abroad, launched a campaign to repeal fatca. the aca claims that “ fatca is an unacceptable manifestation of u. s. financial imperialism that imposes u. s. law on the rest of the world ; this can lead to systematic destabilizing of international financial markets. ” so, should we really be concerned about this so - called “ ticking time bomb ”? let me underscore that the aim of fatca is to target those who evade paying u. s. taxes by hiding assets in undisclosed foreign bank accounts. we recognize and affirm the sovereign right of the u. s. government, as it is of any government, to collect taxes from its citizens. we also recognize that tax avoidance and tax evasion threaten the already weak revenue position of many governments. according to a november 2011 report from the tax justice network, an independent group that promotes financial transparency, governments worldwide lose more than us $ 3 trillion in annual revenue because of tax evasion. this loss is equivalent to more than 5 percent of global gdp. bis central bankers ’ speeches the report estimates that the united states is in the unpleasant position of number one when it comes to tax evasion. the u. s. government loses some us $ 377 billion a year from tax evasion by u. s. - based firms and individuals. to put this sum in perspective, it represents some 7. 5 percent of total u. s. government revenue. in addition, the euro zone countries of italy, germany, france and spain as well as the united kingdom are estimated to each lose at least us $ 100 billion in revenue every year to tax evasion. not surprisingly

##ility – we should always keep in mind how little we know about the economy. monetary policy operates in an environment of pervasive uncertainty – about the nature of the shocks hitting the economy, about the economy ’ s structure, and about agents ’ reactions. the 1970s provide a sobering lesson in the difficulty of estimating the level and rate of change of potential output ; these are quantities we can never observe directly but can only infer from the behavior of other variables. we cannot effectively implement policy without some reference to the likely level of potential, given that demand - supply pressures are an integral part of the monetary transmission mechanism. but we must be realistic about the accuracy of our estimates of potential while always doing our best to improve them. even today, we face a number of sources of uncertainty about the nature of the inflation process. interestingly, we can draw several examples from the paper. first, any estimate of the persistent component of inflation is inherently uncertain. comparing the trend inflation estimates for the gross domestic product of the united states in the current study with related estimates based on stock and watson ’ s recent paper on the topic reveals an important difference : in the latter, the standard deviation to the innovation of the permanent component of inflation from 1997 onward is not zero but rather permits a small but significant amount of drift in the trend from its late - 1990s trough. 2 other trend - extraction exercises imply either a stable trend or a trend that has drifted up over the past several years ; likewise, the behavior of estimated trend inflation over this period differs according to the inflation concept used. although these differences are small relative to the overall variation in the trend over the past forty years, they are assuredly large enough to be meaningful to a monetary policy maker. in addition, we do not yet have a consensus structural model of inflation dynamics that satisfactorily explains all the important aspects of the empirical data. as the paper demonstrates, a standard workhorse model – a sticky - price business cycle model with a drifting inflation target and a new keynesian phillips curve – cannot mimic one important feature of the inflation process. i will leave it to the modelers to debate the seriousness of this deficiency and to propose how it might be rectified. however, it is clear to me that our understanding of the inflation process still has far to go. the issue of expectations illustrates our ignorance. as i have already indicated, inflation expectations are among the most important variables policymakers monitor, but we do not have answers to