weighted capital ratios doubling in recent years ; and a marked improvement in household balance sheets, where debt to income ratios have fallen by about 30 percentage points. together, improved access to finance and raised expectations of future prospects led to a reduction in precautionary savings by households, a modest recovery in consumer spending, a revival in housing investment from very low levels and an increase in business confidence to a 15 - year high. the american and british experiences underscore that recovery is not possible without a meaningful and transparent re - capitalisation of the banking system, and that households need to de - lever before they have the confidence to consume again. 60, 000 jobs per month in the uk is roughly the equivalent of monthly increases in us non - farm payrolls of 300, 000. bis central bankers ’ speeches the question now is whether such progress is sufficient for durable, strong and balanced recoveries over the medium term. growing pessimism the pessimists would argue that it isn ’ t. their case starts from the observation that advanced economy growth rates remain below pre - crisis trends, despite the scale of the fall and years of emergency monetary stimulus. more fundamentally, pessimists point to the pre - crisis period when ( retrospectively ) loose financial conditions did not generate a boom in output and associated inflation. they ask : could stagnation be the new normal? today i want to consider two possible explanations for why advanced economies may have entered a low growth phase. first, on the demand side, they could be in a persistent liquidity trap, making it difficult for resources to be fully utilized, and second, there may have been a persistent deterioration in the supply side such that full utilisation of resources is consistent with slower growth. 1. persistent liquidity trap a liquidity trap occurs when the short - term nominal interest rate hits the zero lower bound. typically in a liquidity trap, the equilibrium real interest rate is negative, creating a persistent inability to match aggregate demand and supply. before proceeding, i should make clear what i mean by the equilibrium ( or natural ) real interest rate. let me use roger ferguson ’ s definition : it is the level of the real policy rate that, if allowed to prevail for several years, would place economic activity at its potential and keep inflation low and stable. for small open economies, like the uk, that equilibrium real rate is determined at the global level by the balance of the supply of savings and demand for investment. in

31. 082017 welcome address first annual research conference of the banco de espana luis m. linde governor buenos dias, good morning to everybody. let me welcome you all to the first annual research conference of the banco de espana. we plan to make this conference our main research event each year. so, we hope that today ’ s edition is the first of many to come. our aim is to bring together scholars and policymakers to express views and discuss on the key policy questions for central banking, both from an academic and a practical perspective. the conference reaffirms the banco de espana ’ s commitment to research as an indispensable tool for economic policy - making. good research strengthens the foundation of our policy framework and lays the groundwork for the models we use in our economic and monetary policy analysis. the banco de espana commits significant resources to research. let me give you some figures. currently, according to the ideas database, our bank ranks third in research among national central banks in the euro zone. in 2016, researchers at the bank published more than 30 working papers. indeed, research is not a matter of quantity, but of quality ; in the last few years our researchers have published in top journals such as econometrica, the american economic review, the journal of political economy, the various american economic journals and the journal of monetary economics, just to mention a few examples. over the last three years, fifteen young economists holding phds from renowned international universities have joined the bank ’ s staff. i am pretty confident that our research output will be improved and enhanced in the future. challenges for macroeconomic research today and tomorrow you will be talking essentially about macroeconomics. looking forward, macro policies, monetary, fiscal, and macroprudential policies, are facing a number of challenges that require deep theoretical and empirical analysis. perhaps, first of all, we need to understand the causes and consequences of the current levels of low inflation in most developed economies, despite the fact that most major central banks have introduced unprecedented monetary measures to support activity and growth. several explanations, ranging from a “ debt supercycle ” to a secular stagnation have been proposed. if natural rates at very low or even negative levels are here to stay, central bankers will have to rethink our standard toolbox and to decide which policy measures put in place during the last decade should be maintained. in this respect, i think that the first paper of the conference, which analyze