been running below target in most advanced countries — the united kingdom being the most prominent outlier — suggests that this challenge is not due to factors specific to a single country. instead, there are more systemic factors at play. investors view these low inflation readings not as an aberration, but rather a new normal. this is evidenced by a broad - based decline in market - based measures of longer - run inflation expectations since the mid - 2000s, with the uk again providing the exception ( figure 5 ). this experience of slow recovery and persistently low inflation is a symptom of a deeper problem afflicting advanced economies — the root cause of which is a combination of low neutral interest 1 / 4 bis central bankers'speeches rates and the lower bound on interest rates, a topic to which i now turn. what ’ s past is prologue underlying these events has been a sea change in the supply side of economies, owing to fundamental shifts in demographics and productivity growth. two demographic trends are evident : people are generally living longer and population growth is slowing. overall life expectancy in member countries of the organisation for economic cooperation and development ( oecd ) has increased from about 65 years in the 1950s to nearly 80 years today, and is projected to exceed 90 years by the end of this century ( figure 6 ). 1 despite this increase in longevity, dwindling birth rates are bringing population growth to a standstill. in oecd countries, population growth averaged over 1 percent back in the 1950s and 1960s, but is now running at half a percent per year, and is expected to gradually fall before dipping into negative figures by 2070 ( figure 6 ). 2 when it comes to productivity, the changes are no less dramatic. in oecd economies, growth in labor productivity — the amount produced per worker hour — has averaged a little over 1 percent per year since 1995, about half the pace seen over the prior decade ( figure 7 ). a major factor driving the slowdown is a dramatic decline in the growth rate of “ total factor productivity, ” or tfp, a measure of innovation and technological change. 3 as bob gordon has taught us, u. s. productivity growth tends to cycle between periods of high growth in decades following fundamental breakthroughs in science and technology, and relatively fallow periods of steady, incremental improvements. all the evidence indicates that we are in one of the latter periods of “ normal ” productivity growth of 1 - 1. 5 percent per year

i would like to take a quick look at the record itself. is the talk about declining volatility reflected in hard evidence? yes, it largely is. thirty - day dollar - mark and dollar - yen historical volatility remained below 10 percent throughout most of 1996 and the first quarter of 1997, and, even with the price action we saw in may, the spike in thirty - day historical volatility we ’ ve observed is not particularly dramatic when compared with similar periods in past years. similarly, implied volatility on dollar - mark and dollar - yen options traded to near record lows in 1996. but, as this month has shown, volatility has not been eliminated. there also have been a number of days in the past year and a half with considerable volatility in the foreign exchange market. and, i have no doubt that we ’ ll have many more of these days - - at times, for example, when markets rapidly adjust to new information or when periods of poor liquidity result in exaggerated price swings. what is clear is that this is a market that is constantly evolving. none of us can say with any certainty whether we ’ re observing the beginning of a trend or an anomalous period that will ultimately be viewed as a brief lull in volatility. however, i don ’ t think many of you would disagree with me when i say that the foreign exchange market over the past six quarters or so has changed significantly from that in 1994 and 1992. for those of you who, like me, were involved in this business in the 1970s and 1980s following the collapse of the bretton woods system, the contrast is very dramatic. given these realities, we must ask ourselves what has changed to alter the way foreign exchange rates fluctuate in the global marketplace? it is obvious that this is not a case of declining volume. the foreign exchange survey most recently published by the bank for international settlements in 1996 shows that daily volume in foreign exchange grew by almost 50 percent between 1992 and 1995, and we have no reason to think that anything has changed since then to alter this trend. what has changed, however, is the new, higher level of transparency that has been introduced in recent years into the foreign exchange market. when i speak of transparency, i am actually referring to a combination of several factors. broadly speaking, i define transparency in this market as the degree to which its participants have equal and simultaneous access to the inputs necessary to price assets and their