the wake of such a massive crisis, recovery has needed active monetary, liquidity and banking policy. beyond the realm of central banking, it needs supply - side reform – to create optimism about higher incomes and better investment opportunities in the future. see the minutes from the monetary policy committee ’ s meeting on 7 – 8 november 2012 : “ at the present time, it was possible that elevated uncertainty and a desire to reduce leverage meant that real activity was less responsive to lower borrowing costs than normal. but this situation could easily reverse, and with it the traction that lower yields could have in stimulating demand and output. ” see broadbent ( 2012 ), “ productivity and the allocation of capital ”, pages 30 – 33 of the monetary policy committee ’ s november 2012 inflation report : and tucker ( 2013 ), annual report to the treasury select committee. there is echo of this in bean ( 2013 ), “ global aspects of unconventional monetary policy ”. bis central bankers ’ speeches if recovery does gain traction, the mpc will need to avoid misperceptions about the likely course of policy. the mpc is using forward guidance to help avoid those possible misconceptions. the committee cannot make the uncertainty about the supply side of the economy and, thus, about the degree of slack go away. but by adopting a probing approach and maintaining an eclectic approach to its assessment of the outlook, the mpc has the wherewithal to provide broadly the right degree of stimulus without risking, or diluting its commitment to, price stability. bis central bankers ’ speeches

uncertainty around the mpc ’ s august forecast for unemployment. my own probability distribution for unemployment is broadly “ flat ” in the sense that i do not regard one of those scenarios as materially more likely than the other. as data comes in, the bank ’ s projections for unemployment are far more likely to change, in one direction or the other, than the committee ’ s forward guidance. probabilistically, that could explain part of the rise in the money market curve given the signs of recovery. all this underlines the need for the committee to keep under review, month by month, a wide range of indictors of slack in the labour market and in firms. for example, if participation in the workforce develops in unexpected ways, the degree of slack implied by any rate of unemployment might change. 7 that recovery is, i trust, finally underway should not be a complete surprise. the mpc has provided a massive amount of monetary stimulus over recent years. its effects were arrested for an extended period by the threat of severe turmoil in the euro area, coming on top of an erosion of spending power from rising commodity prices. monetary policy ( and credit policy for that matter ) works partly by incentivising households and firms to bring forward future spending. they were not likely to do so when the risks and uncertainties on our continental doorstep were so great and so unusual. as those immediate risks and uncertainties receded, see volker ( 2013 ), “ central banking at a crossroad ”. on the “ risk channel ” of monetary policy, see stein and hanson ( 2012 ), “ monetary policy and long - term real rates ” ; tucker ( 2012 ), “ national balance sheets and monetary policy : lessons from the past ” ; and borio and zhu ( 2012 ), “ capital regulation, risk - taking and monetary policy : a missing link in the transmission mechanism? ”. this is broadly comparable to shifts in the velocity of money affecting the interpretation of the rate of growth of the money stock when monetary aggregates were used as targets by uk governments in the 1980s. bis central bankers ’ speeches it was as if uk monetary policy was being switched back on. 8 with monetary stimulus maintained, now within the framework provided by the committee ’ s forward guidance, recovery will continue to be underpinned – although of course the road will be bumpy. that is a key element of what, in our internal discussions, i have called the keynesian part of the bank ’