households have increased their debt faster than their disposable personal income in every quarter over the past five years. despite increased borrowing, however, the household debt service burden, as conventionally measured to include consumer and mortgage debt, remains below the levels reached in the 1980s. this burden has been held down in recent years by falling interest rates and a shift toward longer maturity mortgage debt. nonetheless, even in good economic times it is prudent for households to be prepared for a range of outcomes, not just the most optimistic ones. caution in the global economy while being cautious, let me not convey a pessimistic tone, because i believe that the four major forces currently driving the domestic economy could well provide the underpinning for a new era of prosperity in the global economy. the first of these forces is the creation of, and massive investment in, technology - particularly information and communication technologies. technology is thought to have played an important role in the increase in productivity - the output of goods and services per hour of labor - that is currently providing momentum for the economy of the united states. the second major force is business deregulation. the removal of unnecessary government regulation started more than twenty years ago during the administration of president gerald ford but gathered momentum during the carter years. deregulation allowed businesses, indeed forced businesses, to focus more clearly on the competitive market place, with lessened constraints and increased flexibility. the third major force is more prudent fiscal policy. the latter part of the 1990s has been characterized by government surplus, which, many believe, has freed investment resources for private - sector investment. the final major change was the reduction of both actual inflation and the expectation of inflation as a necessary component of personal and business decision - making. this trend began during the early - 1980s, and it has reached the point of fruition only in the past few years. relatively stable prices have allowed businesses and households to plan their economic affairs with a general expectation that the value of investments will not be eroded through a pernicious increase in the general price level. indeed, price level stability has reinforced the impetus provided by deregulation for businesses to manage their affairs with a priority on efficiency. these developments are not unique to the united states. while our nation was the first to achieve the full benefits of these forces, they have been at work globally as well. software and capital goods embodying newer information and communications technology are a major export of the united states. other nations have

as an essential input in the design of sound monetary policy administration in countries of waifem member banks. ladies and gentlemen, 3. 0 problems of liquidity forecasting liquidity forecasting is largely forecasting the monetary aggregates to obtain a reliable target of banks ’ idle reserves thereby ensuring an efficient management of bank resources through the weekly conduct of open market operations ( omo ). two main components of the omo forecast come to the fore : the optimal level of demand for total bank reserves ( odr ) and the estimated level of supply of total bank reserves on the day of omo ( osr ). fomo = odr - osr t t where fomo = the omo forecast for the day of trading. in making forecasts of the monetary aggregates, odr and osr, in efforts to derive the omo forecast, the authorities face a number of problems. permit me to highlight a few of them : • difficulty with forecasting base money ( monetary base ) since total bank reserves ( odr ) must always be consistent with the ultimate objectives of monetary policy, its computation begins with a forecast of the desired demand for and supply of money. however, while the computation of the demand for money is a fairly straight forward affair, that of the supply of money is problematic. herein lies the concept of the monetary base : the supply of money is a function of the monetary base adjusted by the money multiplier. too often, some of the components of the monetary base are outside the control of the monetary authorities. for example, as long as net credit to government, a component of monetary base, remains outside the control of the central bank, it will be difficult to achieve a stable monetary base, and hence a stable money supply. again, the requirement of the central bank to underwrite the issue of government debt instruments deprives the bank of the control over its portfolio of government securities or ncg, another component of monetary base. of course, the bank has little control over the net foreign assets, a major determinant of monetary base, especially where it is unable to sterilize capital inflow. thus liquidity forecasting is made difficult in circumstances where the central bank exercises weak control over the components of monetary base and therefore money supply. • difficulty with forecasting total bank reserves ( r ) total bank reserves is also a component of monetary base, b, where b = currency outside banks ( cob ) plus bank reserves ( r