it is not very different for policymakers. models and historical regularities are important underpinnings of any preemptive policy. such a policy depends on forecasts because you are attempting to avoid problems that would occur if you failed to act. but judgment is essential too, and more so when historical regularities are called into question, as is the case today. a policymaker, like a forecaster, has to adjust on the fly, before there is time to even determine, with certainty, why the models are off track and certainly before they can be corrected. historians may put this all in perspective in due time. perhaps. but policy is made in real time. in recent years monetary policy has not simply been guided by historical regularities about the relationship between inflation and unemployment inherited from the 1980s and early 1990s. rather, monetary policy has been adaptive, pragmatic and flexible in response to evolving economic circumstances. such an adaptive approach does not throw out the framework that has successfully guided forecasting and policymaking in the past, but attempts, in real time, to adjust that approach based on the current data. key issues in the economic outlook the economy appears to have slowed to near a trend rate in the second quarter, after surprisingly robust growth in the previous quarter. the underlying fundamentals of the expansion continue to look quite positive. there is solid momentum in employment and income, financial conditions are highly supporting, and consumer confidence has soared to record levels. i do not see any obstacles to the continuation of the expansion, with growth near trend, through 1998. there are in my judgment two key issues in the outlook related to monetary policy and these focus on the interaction among growth, utilization rates and inflation. first, will growth rebound to an above - trend rate, raising utilization rates still further? second, are prevailing utilization rates already so high that inflation will begin to rise, even if growth remains at trend? these are the same questions i raised in my first speech after coming to the board, in september 1996. they are the key questions that affected my judgment about the appropriate posture of monetary policy over the last year, and they remain relevant today. answers to your questions let me briefly now turn to some specific questions that you raised in your letter of invitation or that were the subject of congressman frank ’ s comments on my april 24 speech. what do i think of the nairu concept and its usefulness today? nairu stands for non - accelerating inflation rate of unemployment. the relationship between

to mind. first, it may be useful to revisit the issue of having 11 benchmark tenor buckets. it should be evident by now that having so many benchmark tenors does not necessarily improve the ability of the market to price off - the - run issues. stated differently, the major economies typically have 4 - 6 benchmark tenor buckets only and this has not weighed against liquidity and the pricing of off - the - run issues. recent initiatives to exchange short - for - long - term issues help to consolidate depth but a significant potential remains untapped. second, the bond market can be a more active vehicle for raising long - term capital. the fact that the gs market is as big as a third of gdp is itself not a binding constraint. economies such as hong kong, korea, malaysia and singapore all have significant corporate bond markets that complement their respective gs market. this would be a healthy next step for the philippines as it broadens the financing options for corporations while reducing the gapping pressure on bank credits. third, we need to recognize that the philippines is an archipelago. the implication is that the market needs to bridge the gap in space to provide real - time opportunities. two credits cannot be priced differently if all that distinguishes them is location. unless there is economic value to location, any such difference is simply arbitrage. worse, the same credit cannot be priced differently as an investment opportunity in two different locations at the same time. that is simply blatant inefficiency, if not market bias. fortunately, technology has moved forward to allow us to fill gaps in time and space. some time back, the bsp entered into a partnership with market stakeholders on the national settlement highway. the nsh is the technological backbone that will allow the public to efficiently clear and settle good funds across entities in different regions. more recently, the fi - bios was launched to provide retail investors in different regions with the capability to place investment orders on real time basis. these are the type of technological innovations that help us address the unique situation of the philippines. i trust that we can maximize the use of such facilities and make further innovations where needed. fourth and final initiative, the development of the bond market, whether gs alone or inclusive of corporate issues, will not be self - sustaining unless there is a financially - aware investing public. this is not a trivial task but the onus of providing the public with relevant information must be shared by all stakeholders, both