be on everybody ’ s mind. in my speech today, i will talk mostly about these fears as they present themselves in europe, focusing on some of the economic factors behind the current surge in populism. my main message is that protectionism and confrontational politics pose a threat to our security and our welfare. they would divide our villages and weaken them. but our security and our welfare would be threatened just as much by sticking to the established regime of international trade and cooperation. that would mean overlooking the fact that economic change creates winners and losers in the village, thereby frustrating those who have lost the most. we need to find a middle way. 1 / 6 bis central bankers'speeches 2. election times : the euro area economy and rising populism so let ’ s start with europe ’ s current economic condition. since the financial crisis, the pace of recovery in the euro area has been slower than it has been in the united states, not to mention the emerging economies. lately, however, there have been signs of a broad economic recovery. for the euro area, recent figures held a positive surprise – with sound gdp growth of 0. 5 % for the first quarter of 2017. unemployment stood at 9. 5 % in march, down from its peak of 12 % in 2013. but a recent study has shown that the labour market in the euro area is in worse shape than the official job figures suggest, with workers unlikely to see real increases in pay because of the level of underemployment. 1 a measure of “ slack ” in the labour market indicates that about 15 % to 18 % of the euro area workforce are without jobs or would like to work more – which is nearly double the official unemployment rate. underemployment is even growing in weaker labour markets, such as those in france and italy. the still weak labour market in many regions of the euro area is one of the gravest ongoing consequences of the recent financial crisis and an indication that the recovery is still weak. this is particularly true with respect to the high level of underemployment in peripheral regions and among young people. thus, while the recent growth figures make the euro area economy look increasingly healthy, it becomes clear on closer inspection that a lot still remains to be done in order to move onto a sustainable, integrative path of prosperity. and that may already give you some indication as to why protectionism has been on the increase. ever since the uk vote for brexit

mimics previous fomc actions ; and fifth, a first - difference rule that is based on academic work of athanasios orphanides and is designed to take into account the imprecision and uncertainties of our measurements of the level of the output gap or slack and the underlying or steady state real rate of interest. 4 i have plotted the outcome of this exercise in figure 1. so what can we take away from this picture? first, all the rules suggest that liftoff of the funds rate from the zero bound should occur next quarter. this is considerably sooner than many seem to be expecting. see the appendix for the precise mathematical formulations of each of these rules and the relevant references. bis central bankers ’ speeches second, we can also see that although the rules point to policy being tighter, they do present somewhat different profiles of the future path of interest rates. the taylor 93 and taylor 99 rules have a steeper path over the next several quarters than the other rules. the primary reason for this is that both of these rules are playing catchup as they would have had liftoff occur earlier. after catchup, they increase more slowly. this dispersion in the pace of tightening also reflects model uncertainty. but ignoring or dismissing the rules does not avoid the problem such uncertainty poses. robust rules, such as the first - difference rule, tend to have better outcomes on average across models. third, we see that three of the policy paths are not that different from each other. taylor 93, taylor 99, and the performance based rules tend to converge to between 2. 5 and 3. 0 percent by mid - 2015 and remain close thereafter. my own assessment of appropriate policy is similar to that described by the first - difference rule. however, my point is not to decide which path is correct, but to illustrate how such benchmarks can be useful for communications. for example, the exercise might suggest that policy choices that fall outside the bounds of these rules should be viewed with some caution. that does not mean they would be wrong but they would require careful and substantial discussion and justification. even for policy choices that might fall within the bounds, the exercise can provide meaning, quantitative and qualitative, to phrases such as rates are expected to be “ lower than normal ”. another way of highlighting the uncertainty surrounding the future path of policy is to consider different paths for the economy. consider figure 2. here i employ the first difference rule but consider the implications of a stronger and a