more - stable inflation, by making the returns to saving and investment more predictable and by diminishing the likelihood of shocks to the financial system, should encourage economic growth. for example, the united states has experienced a higher average, and less volatile, growth rate since the mid - 1980s. this " great moderation " has been attributed by most observers, at least in part, to improved monetary policy and, by extension, to lower and more - stable inflation. 11 low and stable inflation offers other benefits as well, which may affect the growth rate of gross domestic product ( gdp ) over time. these include reducing the arbitrary redistributions of wealth and income associated with higher and more - variable inflation and shrinking the distortions to resource allocation in the tax code. 12 accordingly, and i am obviously not alone in this view, it is clear that central banks should strive to achieve low, stable inflation. of course, low inflation is at best a necessary, but not sufficient, condition for growth. in many poor economies, inflation may be less of an obstacle to development than poor governance, inadequate education, and legal systems that fail to protect property rights or to enforce commercial contracts. yet, no tradeoff forces countries to choose between lowering inflation and reforming their institutions. on the contrary, high inflation is often a sign of institutional breakdown, and reducing inflation may help to rebuild confidence in economic and political prospects. conclusion in conclusion, let us not forget that the declines in inflation over the past two decades and the resulting boost to monetary credibility we currently enjoy were earned with some economic pain, as the pace of economic activity was slowed, at times severely, to bring inflation down. with longer - run inflation expectations better anchored now throughout the world, i believe that global economic growth will be stronger and more resilient as a result. if the academic evidence does not yet unequivocally support this conclusion, perhaps it is because we are only starting to see the return to sacrifices made in the past. my generation of central bankers has the job of maintaining the victories of the previous mohsin s. khan and abdelhak s. senhadji ( 2001 ), " threshold effects in the relationship between inflation and growth, " imf staff papers, vol. 48, pp. 1 - 21. an earlier imf staff paper also found a negative, nonlinear relationship. see atish ghosh and steven phillips ( 1998 ), " warning : inflation may be harmful to your growth, " imf

, we must continue to ask difficult questions about the functioning of the regulatory framework, and whether it requires adjustments : how do we define a " community bank " for purposes of tailoring regulations to risks? what are the implications of regulatory cliff effects, like those around regulatory capital thresholds under the basel iii endgame and long - term debt proposals, where there is a new, stark line at $ 100 billion in assets? will regulatory proposals effectively impact the viability of certain institutions, particularly those clustered around regulatory thresholds? what would the loss of these smaller institutions mean for credit availability and pricing? in all of these policy decisions, banks must not be passive observers. they must ensure the that regulators and policymakers recognize and understand their important role and the impacts of considered changes to ensure their viability in the future. of course, while we often think of the banking system as being defined by a " regulatory perimeter " - a line that distinguishes institutions that are subject to direct oversight from those that are not - this line in some ways blinds us from some of the important and unintended consequences we must consider in shaping the regulatory framework. banks are an integral part of the larger financial system, and financial risks, including financial stability risks, are not unique to banks. for example, we know that the cost of capital influences not only the pricing of financial services offered by banks, but where activities occur, either within the regulatory perimeter or in nonbank entities and the shadow - banking system. i worry about the migration of risks across this line and what it means for the stability of the u. s. financial system. but i am particularly concerned about intentional regulatory actions that actually push activity to the nonbank financial system. in my view, this structural dynamic - where activities occur and how those choices are influenced by regulation - is one that banks themselves must be concerned with, as over the long - term, it will affect every decision they make about the products and services they offer. while regulatory choices can affect the scope of the regulatory perimeter, these choices can also help to mitigate the flow of risk between the permeable boundary separating regulated banks and other companies. regulators often address risks in the financial 6 / 7 bis - central bankers'speeches system by focusing on regulated banks, promoting up - front due diligence of bank partners, monitoring the risks of these relationships, and placing accountability for issues that arise on the banks themselves. a potentially underused tool that could be used to address these risks is