think that the household sector is overextended, and thus i do not believe that a large, autonomous increase in the personal saving rate is a serious risk to the economy. however, i would not be surprised to see the personal saving rate move up gradually over time to levels more consistent with its historical average. this rise presumably would be consistent with the expected shift in the pattern of growth in our economy - from an expansion that has been led mainly by the household sector to one led more by business spending. the second concern often expressed is that a bubble may have developed in house prices after several years of rapid increases. some of the measured price rise results from improvements in the quality of houses : houses are bigger and have more amenities than in the past, two characteristics that will lead to rising average house prices over time. but even after controlling for quality, increases in home prices have been outstripping general price inflation by a considerable margin in recent years. once again, the low interest rates are probably an important factor. houses, like other assets, generate an expected stream of future benefits. with low interest rates, these future benefits are discounted less heavily, which raises the asset ’ s price today. low interest rates also push up house prices by boosting the demand for housing. of course, some of that increased demand is being met by the rapid pace of construction of new housing. but building houses takes time, and in the interim, higher demand will push up the price of existing houses. although we can identify the key forces behind the rise in house prices in recent years, we cannot be sure that the increases are fully justified by the prevailing fundamentals. still, we need to keep the recent increases in house prices in perspective : although house prices have been outstripping broad measures of inflation - even after adjusting for quality improvements - their rise is nothing like the increase in equity prices in the late 1990s. in fact, the speculative forces that can sometimes drive equity prices to extremes are less likely to emerge in housing prices. first, buying and selling houses is a lot more expensive and cumbersome than buying and selling equities, which makes taking a speculative position in houses much more difficult. second, housing markets are much more local than equity markets, which are national, if not global, in scope. so if any speculative frenzy emerged, it would be much less likely to spread in the housing markets than in equity markets. finally, financial institutions have a much more disciplined process around the

ben s bernanke : global imbalances – links to economic and financial stability speech by mr ben s bernanke, chairman of the board of governors of the federal reserve system, at the banque de france financial stability review launch event, paris, 18 february 2011. * * * by facilitating the allocation of the world ’ s savings to the most productive uses, the free flow of capital across national borders confers substantial economic benefits, including the promotion of economic growth. that said, we have seen a number of episodes in which international capital flows have brought with them challenges for macroeconomic adjustment, financial stability, or both. such challenges have tended to arise in two situations : first, when the “ rules of the game ” of the international monetary system – the policy responses that countries are expected to take to help foster a balanced global economy over time – are either poorly articulated or not observed by key countries ; and second, when the financial systems of nations receiving strong capital inflows have not been up to the task of investing those inflows productively. these issues are hardly new. in the late 1920s and early 1930s, the u. s. dollar and french franc were undervalued, with the result that both countries experienced current account surpluses and strong capital inflows. under the unwritten but long - standing rules of the gold standard, those two countries would have been expected to allow the inflows to feed through to domestic money supplies and prices, leading to real appreciations of their currencies and, with time, to a narrowing of their external surpluses. instead, the two nations sterilized the effects of these capital inflows on their money supplies, so that their currencies remained persistently undervalued. under the constraints imposed by the gold standard, these policies in turn increased deflationary pressures and banking - sector strains in deficit countries such as germany, which were losing gold and foreign deposits. ultimately, the unwillingness of the united states and france to conduct their domestic policies by the rules of the game, together with structural vulnerabilities in financial systems and in the gold standard itself, helped destabilize the global economic and financial system and bring on the great depression. the asian financial crisis of the late 1990s illustrates a somewhat different type of risk associated with large cross - border flows of capital. during the 1990s, strong capital inflows helped support robust growth in many asian economies. but thailand ’