rate will persistently remain near or below zero. • the equilibrium real short - term rate is non - stationary. thus, it will not necessarily revert back to some long - run average value. • u. s. and global markets are integrated to a significant degree. as a result, the equilibrium real short - term rates both here and abroad will tend to move together. this seems especially germane in the current environment in which very low longterm government bond yields in europe and japan appear to have been an important factor in pulling u. s. long - term yields lower over the past year or so. • given the uncertainties about the current and future levels of the equilibrium real short - term rate, an inertial policy rule may lead to better outcomes. as a consequence, the process of normalization of monetary policy should proceed cautiously, with short - term interest rates more likely to rise only gradually toward the equilibrium real short - term rate. bis central bankers ’ speeches that said, i think the paper leaves some open questions worthy of further exploration. first, although the equilibrium real short - term interest rate, which i will refer to as r *, is only loosely related to real potential gdp growth, could we do better if we were to decompose real potential gdp into its components – such as the growth rates of labor input and productivity – and examine the relationship between r * and each component separately? second, accepting the principle that an inertial monetary policy rule performs better as uncertainty about the level of the equilibrium real short - term rate increases, what does this imply for monetary policy under current circumstances? third, in light of the evidence on the volatility of the equilibrium real short - term rate, what are the implications of adopting a taylor - type rule as a benchmark for monetary policy evaluation? i will argue that in the u. s. context, a taylor - type rule – even an inertial one – is an incomplete guide for policy because it does not explicitly include financial variables that are important factors in the transmission of monetary policy to the real economy. finally, i will briefly comment on the issue of secular stagnation and my views on the long - term equilibrium real federal funds rate. turning to the first issue of the relationship between real potential gdp growth and the equilibrium real short - term interest rate, the authors find, at best, only a very loose relationship. i would have welcomed some further work here, more closely focused on the

in a moment, but let me offer a few thoughts now on the challenges for supervisors to collaborate more effectively with one another. more effective collaboration was of course a key reason for the establishment of the basel committee. the committee provides an excellent forum for open and constructive dialogue among banking supervisors. this spirit of communication will be more crucial than ever as the new framework is adopted across national jurisdictions. it is clearly very important that the new accord be implemented in a consistent manner across various jurisdictions. market competition should be driven by each bank ’ s strengths, rather than by differences in each country ’ s rules. accordingly, the basel committee established the accord implementation group. as you know, this group is responsible for promoting the consistency and quality of implementation of the new accord and facilitating the exchange of information among national supervisors about bank and supervisory practices. through the implementation group senior line supervisors are beginning to share among themselves very practical insights on how to assess internal risk management processes. we think that this detailed sharing of information among people who are on the front lines of supervision will go a long way to ensuring that assessments can be done in a more consistent fashion across jurisdictions. we appreciate the very strong endorsement that both the bba and liba have offered in welcoming the formation of the accord implementation group. indeed, we know that both associations are keenly interested in how the group may well help ensure that a single banking organization active in many jurisdictions not face divergent sets of expectations from different banking supervisors under the new accord. i am pleased to note that the accord implementation group has taken up this concern among its first topics for discussion. an important goal of the coordination and information sharing is to help ensure that national supervisors, in assessing the eligibility of an internationally active bank ’ s internal rating system, do not arrive at different conclusions. preparing for the new accord let me get into more detail now on what both banks and supervisors will need to do to prepare for the accord, by describing what we are doing in the united states. i am sure our experience will have parallels in the uk and elsewhere. challenges for banks to begin with, we have looked to get our arms around where the major firms actually stand in preparing for basel ii, and to pinpoint the major challenges that lie ahead for them as they look towards implementing the advanced approaches to credit and operational risk. importantly, our dialogue with the banks has focused on where they stand in meeting the minimum standards for entry to, and on - going use of, the irb approach. our