, which are not mutually exclusive. build good habits for starters, let ’ s be honest about “ looking the other way. ” many financial institutions have, at times, turned a blind eye to evidence of money laundering, sanctions evasion, corruption, kleptocracy, and plain theft. over time, some institutions become weak links in our system when they take on riskier clients, perhaps in order to chase profit, without developing the ability to manage those relationships in a responsible way. often these relationships start small : one lowvalue, ethically suspect transaction. but it leads to another and another to the point where the money is simply too good to turn away, no matter how many red flags there are. there may be less pecuniary explanations too. regardless of the profit potential, our sensitivity to warning signs can fade from lack of practice. for every time we look the other way, it is incrementally easier to ignore the next instance. on the flip side, each time we intervene, the next intervention is easier too. effective compliance gets better with practice. like ethics, it needs to be a habit. and don ’ t think that the bad guys don ’ t notice a firm ’ s reputation — or, dare i say, its culture. word spreads quickly. a law firm or accounting firm or auditing firm can quickly become known for being “ creative ” in its approach to an internal investigation or issuing a tax or audit opinion. the same goes for corporate reputations for strong and weak compliance programs, or high or low tolerances for risk. clients may be attracted to firms with reputations aligned with their goals, for good or ill. so, my first word of advice on where to go from here is to safeguard your corporate reputations by developing good habits. just because it ’ s legal, doesn ’ t make it right 3 / 6 bis central bankers'speeches that ’ s very high - level, prudential advice — not legal advice. a second point i ’ d like to emphasize is to avoid cabined views of what ’ s permissible or impermissible. just because something is legal, doesn ’ t make it right. i ’ m a lawyer, and i like to say that legal expertise is what gets you into the room. knowing the law is necessary for professional legitimacy. but, in my view, it is not sufficient. lawyers also have to consider the bigger picture — the purpose of relevant laws, the client

at the start that the taylor rule ( by which i mean the formulation based on john ’ s 1993 and 1999 papers ) has a number of positive attributes that make it a useful reference for policymakers. first, it has two parameters – the long - term inflation objective and the level of potential output – that map directly to the federal reserve ’ s dual mandate objectives. second, the rule has the desirable feature that when economic shocks push the economy away from the central bank ’ s objectives, the taylor rule prescribes a policy response that can help push the economy back toward the central bank ’ s goals. third, a number of studies have shown that taylor rules are robust in the sense that they generally perform quite well across a range of different assumptions about how the economy is structured and operates. despite these attractive features, i don ’ t believe that any prescriptive rule, including the taylor rule, can take the place of a monetary policy framework that incorporates the fomc ’ s collective assessment of the large number of factors that impact the economic outlook. jonathan mccarthy, paolo pesenti, argia sbordone and joseph tracy assisted in preparing these remarks. bis central bankers ’ speeches as i see it, the taylor rule has several significant shortcomings that can be detrimental to the attainment of the federal reserve ’ s mandated objectives. these shortcomings are not just theoretical ; they have been very relevant to monetary policy in recent years. first, the taylor rule is not forward - looking. its policy prescription is based on the current size of the output gap and the deviation of current inflation from the fed ’ s objective, not on how these variables are likely to evolve in the future. so, in a rapidly changing environment, the taylor rule and other similar prescriptive rules will wind up being “ behind the curve. ” for example, in the fall of 2008, taylor rule prescriptions were well above the level of rates that was appropriate given the sharp and persistent deterioration in the economic outlook and the sharp tightening in financial conditions that occurred during that period. of course, many economists at that time recognized that such prescriptions would have been inappropriate and suggested various ad hoc modifications to the prescriptions – in fact, john himself suggested that modifications to his rule were appropriate at that time. 2 nonetheless, there was no consensus about the “ right ” modification to the rules at that time, in part, because the circumstances were unprecedented and the outlook so uncertain. if the fomc had been