or to competition and firms ’ mark - ups. nevertheless, the natural rate remains useful to policymakers as a reference point for assessing the tightness or looseness of the monetary policy stance. the natural rate of interest cannot be observed directly any more than the trend real rate. it can be estimated through economic models though the estimates are sensitive to the models used. bank of england estimates, using a variety of models, suggest that the natural rate fell very sharply below the trend real rate during the financial crisis. it fell by as much as 10 percentage points according to some estimates as the shocks from the crisis – deleveraging, the slowdown in world trade and the increase in uncertainty – pushed the natural rate very deep into negative territory. even using qe, it was difficult for monetary policy to follow the natural rate down to the level necessary to offset the shock and to close the output gap over the policy horizon. in other words, though it appeared exceptionally loose by historical standards, bank rate at ½ % and a very large, £375bn, programme of asset purchases, in retrospect, constituted a tight policy setting relative to what the economy needed to offset the shock. this is perhaps one reason why the uk recovery from the post crisis recession was slow by historic standards. it is generally acknowledged that the exceptional monetary policies implemented in the years immediately following the crisis were necessary. however, we are now eight years on and monetary policy still appears to many exceptionally loose by reference to historical rates of interest. can this still be justified by reference to the natural rate? my own view is that it can. the natural rate, according to most estimates, has risen since 2012 from its deep post - crisis trough. it is now closer to the zero mark but it ’ s still likely to be negative. unlike the post crisis period when policy rates would have needed to be deeply negative to follow the natural rate, monetary policy is now more able to be close to the natural rate and so to keep demand and supply in balance. but it can only do so with very low interest rates or, in the case of some advanced economies, with slightly negative rates and qe. there is a simple cross check on the model estimates of the natural rate – the actual evolution of inflation, output and interest rates over the past few years. the natural rate as john h williams observed in response to keynes and with some despair, is : see figure 1 at the end of the speech for an illustrative breakdown of some

interest rate environment. recent empirical studies show that low interest rates encourage excessive risk - taking. this aspect not only represents a new and effective transmission channel for monetary policy, but is also highly relevant for financial stability policy. this also applies to the international bond markets which – as seen in similar earlier phases – are strongly boosted by currency carry trades and leveraging, but then prove extremely sensitive and fragile when the interest rate trend reverses, as witnessed in the bond market turmoil of 1994 and thereafter. back then, an unexpectedly small fed rate hike was seen as a trigger of the bond market turmoil. the recent financial crisis has added an important new element : the structure of the international bond markets has shifted considerably in recent years, partly in response to financial market crises. for example, the fed is now the largest investor on the us treasury market, ahead of china and japan. low interest rates and the risk channel not only point to the need for an early exit from non - standard monetary policy measures – even if no risks to price stability are on the horizon. the current monetary environment in some advanced economies also point to the vital importance, in view of the aforementioned risks, of carefully and skilfully communicating the monetary policy exit strategy. greater amplitudes of commodity price trends low interest rates and plentiful global liquidity are frequently cited as causes of the growing amplitudes of commodity prices – and this is the fourth aspect that i would like to touch upon. global investors – some commentators say – are driving up commodity prices in their quest to maximise yield and diversify their portfolios through speculative investment. the issue of “ commodity price trends ”, which is also on the g20 ’ s agenda during the french presidency, should – in my view – be given high priority for two important reasons. first, it directly affects the poorest sections of the world ’ s population. and second, it has a direct and much larger impact on price stability than asset prices. this is particularly true in the emerging market economies, in which commodities have a large weight in price indices and therefore force monetary policymakers to raise interest rates more quickly, thereby attracting more short - term capital inflows. that makes it all the more important to analyse the commodity markets and derive the corresponding policy recommendations in a non - dogmatic and systematic fashion. first of all, it should be noted that real supply and demand factors have, for several years, shown a co - movement towards making commodities scarcer and pushing up commodity