the overly expansionary monetary policy amply documented by john taylor. it was obvious to virtually all economists that the country needed a permanent budget shift as vietnam spending increased, but what came out of that was a delayed temporary tax increase. anything else would have made the war less popular, and by then the vietnam war was pretty darn unpopular. quite possibly, our intellectual understanding was not where it should have been in the late 1960s, but 90 percent of the policy problems were political, with the policymakers themselves. these days the board staff makes a baseline forecast and grafts on frbus to get the results for alternative scenarios. we actually began to do these types of experiments once our model was put together in the late 1960s. i was dying to present the results to the board, but never could get past lyle gramley, our sponsor but also our gatekeeper. he didn ’ t trust the model enough when it was used as a pure forecasting device. then, as i suppose now, we had the most trouble forecasting equipment investment - most of the other final demand sectors worked pretty well. the investment accelerator was also the reason our dynamic simulations ran off - track. when we would suspend the investment equation, things would work reasonably well. i have heard the modern day staff complain about estimating an accelerator effect for equipment and software and, believe me, i am sympathetic. another place where the intervening years have made a real difference is the way in which the baseline forecast itself was put together. in our day it was totally anticipations data - leading indicators of this or that, for a quarter or two ahead at most. today i hear dave stockton describe the baseline forecast in very model - oriented terms - this effect, that coefficient, and so forth. nowadays the baseline forecast also runs out a few years, something the judgmental forecasters of earlier days would never have attempted, and it even has measures of forecast uncertainty. all of these are real improvements, far beyond what was done in the 1960s. for me, this work all came to an end in may 1970. at the time i felt we had brought the model as far as i thought we could bring it, at least for a while, and i really wanted to do some other kind of economics. whether the external pastures were in fact greener i will never know - they just seemed greener at the time. so i left the board staff, confident that i would never return either to the board or to large - scale macro

improved training schemes and sufficient flexibility in labour contracts are required in order to avoid an increase in structural unemployment. at the same time, existing competitiveness problems, as well as domestic and external imbalances, need to be urgently addressed by the countries concerned. to that end, wage - bargaining institutions that allow wages to adjust appropriately to losses in competitiveness and the unemployment situation are indispensable. likewise, measures that increase price flexibility and non - price competitiveness are essential. finally, an appropriate restructuring of the banking sector should play an important role. sound balance sheets, effective risk management and transparent, robust business models are key to strengthening banks ’ resilience to shocks and to ensuring adequate access to finance, thereby laying the foundations for sustainable growth and financial stability. we are now at your disposal for questions.