with the adjustment to those shocks affect the macroeconomic trajectory. the timing and speed of the response by households, businesses and governments is likely to affect the economic outcomes. in economic terms ( borrowed from physics ), this is described as hysteresis or path dependence. decisions that are taken now can have significant effects on future climate trends and can limit or eliminate the ability to mitigate the effect of those trends. hysteresis is complicated for macroeconomic policies such as monetary policy to deal with. research into hysteresis in the labour market has documented the long - lasting effects of large rises in unemployment and the difficulty in reversing those effects. [ 7 ] to me, that research seems a useful framework to think about the effect of climate on the economy. how can we gain insights into the potential impacts of climate change on output and inflation? one avenue is to use scenario analysis. there are some useful studies that look at the impact of climate change on particular sectors of the economy. they are often, by design and necessity, partial equilibrium ; that is, taking into consideration only a particular market to analyse the impact. but the effect on the overall economy depends on what else is happening. general equilibrium analysis provides the opportunity to consider how prices adjust and how people respond to price signals in the whole economy. the analytical approach of looking at things in general equilibrium is a critical part of the economics tool kit. it is an important contribution the economics profession can make to the climate change discussion. however, general equilibrium models often provide only a comparative static view. that is, the economy is in one equilibrium now and in the future it will be in another equilibrium. but for monetary policy, we very much care about the dynamics of moving from one equilibrium to another ( and also we are generally not dealing with an economy in equilibrium ). how long will it take the economy to adjust? monetary policy has its maximum effect over a horizon of two or so years. much of the adjustment may be taking place beyond that horizon but we very much need to be alert to when it is having a material influence within that horizon. to do that, we need to have an understanding of what the transition path might look like. thus for monetary policy we need to assess both the direct physical impact of climate change and also we need to assess the transition ( adjustment ) path. what will the inflation and output outcomes be along that adjustment path? how should monetary policy respond to these outcomes? we also need to

something that still differentiates, contrary to a new apparently established belief, banks from enterprises operating in different industrial sectors. to repeat something that i said a year ago, before the start of the current debate on the consequences of the new regulatory set - up, substantial observance of the rules on market protection and competition remain indispensable. however, in assessing the public role in the prevention and resolution of crises, and not only financial crises, i believe that greater consideration should be given to the characteristics that distinguish policies designed to activate market mechanisms from state aid that distorts competition. bis central bankers ’ speeches