ben broadbent : monetary policy, asset prices and distribution speech by mr ben broadbent, deputy governor for monetary policy of the bank of england, at the society of business economists annual conference, london, 23 october 2014. * * * i would like to thank alina barnett for research assistance and i am also grateful for helpful comments from other colleagues in particular from richard harrison, david learmonth and gareth ramsay. the views expressed are my own and do not necessarily reflect those of the bank of england or other members of the monetary policy committee. a few years ago, i used to take the overground train into work. the line was cluttered with stations – mine was barely 400 yards on from the previous stop. so you can understand why my fellow commuters were less than convinced one morning when, seeking to explain why our train was 20 minutes overdue, the driver said this was “ because we left the last station late ”. it raised a smile. but it wasn ’ t an explanation. i confess i have a similar reaction to accounts that seek to “ explain ” low interest rates, and the behaviour of asset prices more generally, solely by reference to what central banks have done. this is especially true when those accounts go on to attribute significant and lasting redistributive effects to these policies. for example, and at least when they happen to be going up, it ’ s quite common to hear that equity markets are benefiting from “ easy money ”. but independent changes in monetary policy will ultimately be reflected in inflation and, despite a decline in interest rates that ’ s now gone on for 20 years, inflation has remained pretty close to target, throughout the developed world ( chart 1 ). this suggests that, rather than causing the decline themselves, central banks have instead been accommodating a deeper downward trend in the “ natural ” or “ equilibrium ” rate of interest. that is not a trivial matter : if they had failed to track this trend, policy would have been too tight and inflation and output too low. and although stocks performed well through the early part of that decline, for much of it they ’ ve not done so. chart 2 plots the yield – inversely related to the price – on indexed gilts and uk equities. through the 1990s these two markets tended to move together and, in price terms, generally upwards. since around 2001, however, their yields have diverged. equities have significantly underperformed bonds. this

s trading portfolio and warehouse must be liquid. securities regulators are having to look well beyond their roots, accepting that their rules and policies influence the resilience of the system. and financial stability authorities, including central banks, have to become as comfortable debating the ( hard and soft ) infrastructure of core capital markets as they are with, say, the intricacies of the capital structure of banks. all of that is essential if we are to make progress with comprehending the network characteristics of the financial system. securities regulators and financial stability authorities will have to meet half way. in that spirit, today i have posed questions about the perspective and responsibilities of listing authorities ; whether the distinction between public and private market transactions is as relevant for financial stability as it is for some other public policy objectives ; how securities regulators need to be alert to innovations outstripping their regimes ; how to factor the importance of resilient liquidity into the debate about trading platforms ; the importance of ccps as system risk managers, collecting large - position data, and whether they should apply gross margining ; the case for a trade repository for securities lending and collateral swaps ; the need for securities regulators and accounting standard setters to relax about forward - looking provisions, and for banking supervisors to relax about publishing some regulatory returns ; the need for reform of the regulatory regime for some types of shadow banking ; and the need for a review of the regulatory and other incentives prompting longterm asset managers to target minimum nominal returns. if that is a longish list, it is because there has still been little public debate in this area. my review of the overlap of interest between securities regulators and financial stability authorities enters familiar territory when it gets to ccps, shadow banking and banks ’ own disclosure practices. but i hope i have persuaded you that the regimes for the issuance and distribution of securities, for trading platforms, and for asset management can also matter to the resilience of the financial system. i hope that there may be some agreement that, from a financial stability perspective, policies might sometimes more appropriately be cast in terms of inter - dealer ( or “ intra - financial system ” ) markets and “ end user markets ” rather than in terms of public markets and private transactions. and i hope that there can be a consensus that central banks can play a useful role in monitoring and fostering robust practices and infrastructure in the short - term financing markets. the co - incidence of interests between macroprudential authorities and securities regulators is beginning