further in the past, such as electrification or the internal combustion engine, were equally revolutionary, if not more so. in addition, recent research has highlighted the important role played by intangible capital, such as the knowledge embodied in the workforce, business plans and practices, and brand names. this research suggests that technological progress and the accumulation of intangible capital have together accounted for well over half of the increase in output per hour in the united states during the past several decades. 2 innovation has not only led to new products and more - efficient production methods, but it has also induced dramatic changes in how businesses are organized and managed, highlighting the connections between new ideas and methods and the organizational structure needed to implement them. for example, in the 19th century, the development of the railroad and lucas ( 1988 ), p. 5. see corrado, hulten, and sichel ( 2009 ) and corrado and hulten ( 2010 ). bis central bankers ’ speeches telegraph, along with a host of other technologies, were associated with the rise of large businesses with national reach. and, as transportation and communication technologies developed further in the 20th century, multinational corporations became more feasible and prevalent. economic policy affects innovation and long - run economic growth in many ways. a stable macroeconomic environment ; sound public finances ; and well - functioning financial, labor, and product markets all support innovation, entrepreneurship, and growth, as do effective tax, trade, and regulatory policies. policies directed at objectives such as the protection of intellectual property rights and the promotion of research and development, or r & d, promote innovation and technological change more directly. in the remainder of my remarks, i will focus on one important component of innovation policy – namely, government support for r & d. as i have already suggested, the effective commercial application of new ideas involves much more than just pure research. many other factors are relevant, including the extent of market competition, the intellectual property regime, and the availability of financing for innovative enterprises. that said, the tendency of the market to supply too little of certain types of r & d provides a rationale for government intervention ; and no matter how good the policy environment, ultimately, big new ideas are often rooted in well - executed r & d. the rationale for a government role in research and development governments in many countries directly support scientific and technical research, for example, through grant - providing agencies ( like the national science foundation in the united states ) or through tax incentives (

system as a whole, with the objective of ensuring that bank credit would still be available to households and businesses even if the economy were to perform more poorly than expected. we now also routinely apply macroprudential methods to the analysis of significant economic developments, whether domestic or foreign. the sovereign debt concerns in europe provide one example. as yields on european sovereign debt and bank debt rose in the spring of 2010, federal reserve supervisors began to evaluate u. s. banking firms ’ exposures to european banking firms and sovereigns. in addition to evaluating direct exposures, we analyzed scenarios under which sovereign debt concerns might lead to broader financial volatility. our focus was on the possibility that financial disruptions might impede credit flows and economic activity in both europe and the united states. in our work we conferred extensively with european bank supervisors ; for example, we discussed potential risks to european banks ’ abilities to obtain dollar funding and the implications of european banks ’ need for dollars on u. s. money markets. this work suggested that providing a backstop for the dollar - funding needs of european financial institutions could mitigate the potential for spillovers to the united states from european sovereign debt concerns. in accord with this bis central bankers ’ speeches analysis, in may 2010 the federal open market committee announced that it had authorized dollar liquidity swap lines with other central banks in a preemptive move to avert a further deterioration in liquidity conditions. macroprudential considerations have also been important for the federal reserve ’ s rulemaking, particularly those rules implementing the dodd - frank act. for example, with other regulators, we recently proposed rules to set margin requirements for over - the - counter derivatives that are not cleared through a central counterparty. the proposed rules reflect not only safety - and - soundness concerns but also macroprudential goals ; specifically, the rules seek to increase the resiliency of the financial system as a whole by reducing the potential for contagion between swap market participants. under the proposed rules, the moststringent margin requirements would apply to derivatives contracts between swap dealers or other major swaps market participants, as such arrangements could otherwise involve a risk of “ default chains ” in which distress at one major firm could cascade through the swap markets. as i mentioned earlier, the macroprudential approach to financial regulation is gaining increasing adherence internationally. along with our efforts to implement reforms domestically, the federal reserve has for some time been working closely with foreign counterparts to help coordinate the