unemployment rate, and the longer - run normal unemployment rate from the december 2016 sep. - 13 run ” is consistent with this view. some estimates put the current value of r * close to zero, which leads to the purple dashed - dotted line in figure 8. 25 figure 9 provides prescriptions from the policy rules shown in figure 7 that vary along dimensions other than the neutral real rate. the first - difference rule shown by the purple dashed - dotted line incorporates forecasts by prescribing changes to the federal funds rate based on projected inflation relative to its objective and the projected change in the output gap. 26 the insight behind this rule is that it does not require estimates of the neutral real rate or the level of the output gap. 27 the green dashed line shows the policy prescription from an inertial version of the “ balanced approach ” rule with an intercept of 1 percent, which includes a lagged value of the nominal interest rate. 28 this rule does not go as far as the first - difference rule in eliminating the level of r * from the policy prescription, but it does prescribe that policy move only slowly toward its longer - run level, which places less weight in the short - run on the estimate of r *. this rule see kathryn holston, thomas laubach, and john c. williams ( 2016 ), “ measuring the natural rate of interest : international trends and determinants, ” finance and economics discussion series 2016 - 073 ( washington : board of governors of the federal reserve system, september ), https : / / www. federalreserve. gov / econresdata / feds / 2016 / files / 2016073pap. pdf. orphanides ( 2003 ) proposed a rule that sets changes in the nominal interest rate equal to deviations in nominal income growth relative to target, δr = β [ ( π + δy ) ( π * + δy * ) ], where y is real gdp. the forecast - based version employed here substitutes the change in the unemployment gap for the change in the output gap ( using an okun ’ s law coefficient of 2 ) and sets β to 0. 5, yielding δr = 0. 5 ( π π * ) δu. when implemented using forecasts, inflation is the 4 - quarter inflation rate 3 quarters ahead, and δu is the 4quarter change in the unemployment rate 3 quarters ahead. see athanasios orphanides ( 2003 ),

export - led growth model, hence the need to look for new markets just as emerging markets have done to move away from traditional market enclaves. bis central bankers ’ speeches the policy issue is then the determination of the appropriate role of exchange rate policy, with a view to facilitating an appropriate structural adjustment process that promotes long - run and sustainable growth. the theme of today ’ s seminar is timely as kenya ’ s economy readies for take - off. policymakers need to find a flight path through the lingering risks. ladies and gentlemen, several papers that link monetary policy actions and the exchange rate policy have been lined up for presentation today. these include research that looks into factors that explain exchange rate movements, the extent of real exchange rate misalignment and the relationship between the real exchange rate and exports. we will also get presentations on papers that develop indices that can serve as an early warning system for currency and macro - economic crises. 4 as kenya aspires to be the regional financial hub ; and is indeed currently regarded as so, one of the pillars for maintaining this regional leadership is also being on the frontier of research information for the financial sector. a well known fact is that a financial boom can trigger an overvaluation of a currency if adjustments do not take place over time. the kenya school of monetary studies is well placed to provide this leadership and it is challenged to do so. therefore, these types of seminars should be the norm on an annual basis. but filtering policy conclusions that can be used for policy direction remain the most important objective. as i conclude, i thank the participants present, including those that have travelled from far for this seminar. i hope the handful of issues addressed in the contributions today will provide the basis for a rewarding discussion. once gain – you are all very welcome! it is my pleasure to declare this workshop officially opened. thank you. bis central bankers ’ speeches