easing lending standards or rapid credit growth is justified by strong economic fundamentals and whether swings in capital allocation are efficient or not. we aim to deploy and calibrate the right macro - prudential tool to address both the perceived risk and the efficiency implications, whether by changes to banks ’ capital requirements or influencing lending behaviour. to date we have only deployed the lvr tool, in response to rapid house price growth and the sharp increase in the provision of high lvr loans – that is loans with relatively small deposits. the reserve bank ’ s speed limit on high - lvr loans has been an important mitigant to the significant increase in financial system risks associated with mortgage loans over the past five years. by improving the resilience of household balance sheets, the policy is expected to lower the numbers of households that are forced to sell their house or significantly reduce expenditure in a severe downturn. 17 in the five years prior to the start of the gfc, house prices increased about 60 percent in the uk and 40 percent in the us. in the following five years, prices fell about 15 percent in the uk and 36 percent in the us. 18 measures may improve both efficiency and stability. in the case of ‘ irrational over - investment ’, externality costs exist with consumers and investors taking insufficient account of costs imposed on others from the increased risks of failure or recession, while capital misallocation also occurs. in this case stability and efficiency would both be increased through macro - prudential measures. our risk tolerance for the recent housing and credit boom is implied by our calibration of the lvr restrictions. 19 we keep these settings under review and will publish our next assessment of them in the upcoming fsr. the question we are assessing is whether the same restrictions are needed in the current environment where debt levels remain high but are not deteriorating, now that bank lending standards have tightened significantly and rapid growth in credit and house prices have stabilised. if these conditions continue, we expect to gradually ease the policy in coming years. the other macro - prudential tools also have an important role to play. for example, a counter - cyclical capital buffer would increase bank capital, and thereby improve banks ’ resilience to a crisis when risks are heightened ; and reduce the extent of deleveraging by banks in a downturn, thus improving efficiency by mitigating the effects of the boom - bust cycle on the wider economy. the role of counter - cyclical buffers in

the interim, and especially during and between the two world wars, the correlation between interest rates and economic growth was lower and the volatility of inflation higher. this is as you ’ d expect. to stabilise with the nominal price of the metal fixed, the effective target for the price of goods and services in a gold standard regime is the inverse of its real equilibrium price. a rise in the supply of metal, from new discoveries for example, leads to inflation in the cpi ( allowing the real price of gold to fall ). if demand for gold rises ( for example because of strong economic growth more generally ), without any increase in the supply, the cpi tends to fall. subject to these variations, a gold standard amounts to a target for the level of the cpi. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice inflation the monetary authority needs to lean against the cycle, at least when it ’ s driven by swings in demand8. if the link between short - term interest rates and economic growth is reasonably clear, at least during stable monetary regimes, the cyclicality of longer - term bond yields is less so. in the data they ’ re essentially acyclical ( none of the orange bars in chart 5 is statistically distinguishable from zero ). nor is there any empirical correlation between bond yields and the level of government debt ( chart 6 ). chart 5 : no significant correlation between economic growth and changes in long - term bond yields based on gdp growth smoothed over 2 - year periods, and changes in bank rate and consols / long - term government bond yields over 2 years. sources : thomas and dimsdale ( 2017 ), klovland ( 1994 ), capie and webber ( 1985 ), ons, dmo, bank of england, and bank calculations. chart 6 : no relationship in long - term uk data between level and cost of government debt sources : thomas and dimsdale ( 2017 ), capie and webber ( 1985 ), neal ( 1990 ), klovland ( 1994 ), odlyzko ( 2014 ), ons, dmo and bank of england. i don ’ t think we should be terribly surprised by this. as far as the link with economic growth is concerned, we should remember that bonds are long - term assets. their yields will therefore depend more on expectations about how the economy behaves over the future than on