term prospects for the u. s. economy remain favorable. structural productivity continues to grow at a firm pace, and rebuilding activity following the hurricanes should boost real gdp growth for a while. more uncertainty, however, surrounds the outlook for inflation. the past decade of low inflation and solid economic growth in the united states and in many other countries around the world has been without precedent in recent decades. much of that favorable performance is attributable to the remarkable confluence of innovations that spawned new computer, telecommunication, and networking technologies, which, especially in the united states, have elevated the growth of productivity, suppressed unit labor costs, and helped to contain inflationary pressures. the result has been a virtuous cycle of low prices and solid growth. contributing to the disinflationary pressures that have been evident in the global economy over the past decade or more has been the integration of in excess of 100 million educated workers from the former soviet bloc into the world's open trading system. more recently, and of even greater significance, has been the freeing from central planning of large segments of china's 750 million workforce. the gradual addition of these workers plus workers from india - - a country which is also currently undergoing a notable increase in its participation in the world trading system - - would approximately double the overall supply of labor once all these workers become fully engaged in competitive world markets. of course, at current rates of productivity, the half of the world's labor force that has been newly added to the world competitive marketplace is producing no more than one quarter of world output. with increased education and increased absorption of significant cutting - edge technologies, that share will surely rise. 2 / 3 over the past decade or more, the gradual assimilation of these new entrants into the world's freemarket trading system has restrained the rise of unit labor costs in much of the world and hence has helped to contain inflation. as this process has unfolded, inflation expectations have decreased, and accordingly, the inflation premiums embodied in long - term interest rates around the world have come down. the effective augmentation of world supply and the accompanying disinflationary pressures have made it easier for the federal reserve and other central banks to achieve price stability in an environment of generally solid economic growth. but this seminal shift in the world's workforce is producing, in effect, a level adjustment in unit labor costs. to be sure, economic systems evolve from centrally planned to market - based only gradually and,

non - hqla collateral, after haircuts, to satisfy its additional borrowing needs. bech and keister ( 2013 ) extend a standard model of monetary policy implementation to include the new liquidity regulation and they discuss how different types of open market operations affect bank balance sheets and the lcr calculations ; see m. bech and t. keister “ the liquidity coverage ratio and monetary policy implementation ”, bis working papers, 2013. rochet and tirole ( 1996 ) emphasise the role of interbank peer monitoring in reducing borrowers ’ moral hazard and their excessive risk - taking ex post ; see j. - c. rochet and j. tirole “ interbank lending and systemic risk ”, journal of money, credit and banking, vol. 28, no. 4, 1996. hoerova and monnet ( 2011 ) view market bis central bankers ’ speeches money market ( as demand might not be fully matched by supply ) and segmentation in the market between maturities over and below 30 days. at the same time, by reducing liquidity risk, the lcr may lead to lower liquidity risk premia. the overall effect of these two countervailing forces is unclear though. while there could be an overall impact on the difference between short and longer - term rates, to assess the overall impact on the monetary policy transmission, one would need to see whether the transmission from short to longerterm rates would be also affected. however, it remains to be seen whether unsecured lending beyond 30 days will revive after the crisis. as mentioned, this new set of liquidity requirements is expected to have important consequences for limiting solvency risk and encouraging good risk management. in fact, the regulation is expected to bring an overall positive effect on the functioning of the money market by internalising the negative externalities for financial stability and monetary policy, i. e. reducing information asymmetries concerning banks ’ liquidity risk exposure and their liquidity risk bearing capacity, creating the conditions for a better functioning of the money market. 17 this has to be combined with actions ensuring a proper functioning of the money market ( such as oversight of reference rates along the lines recently proposed by the european commission ). it should also be seen as a complement to regulatory reforms that will improve market discipline in other segments of the banks ’ liability structure, such as capital buffers and the new bail - in rules for senior bond - holders and uninsured depositors. and since