between quarterly average overnight call rate and interest rate obtained from the taylor rule, and inflation gap as the difference between quarterly average inflation rate and target inflation ( chart 6 ). it showed statistically significant inverse correlation which implies that higher the deviation of policy rate from that implied by the simple taylor rule, higher is the deviation of inflation from its desired level. 9 correlation coefficient of – 0. 78 which was statistically significant at 1 per cent. bis central bankers ’ speeches chart 6 : interest rate gap mirrored inflation gap moreover, in the crisis period, the gap had widened which has since narrowed in 2012 – 13. additional diagnostics suggested bi - directional causality between the interest rate gap and inflation gap. it is noteworthy that this gap was narrower during the high growth phase of 2003 – 08. conclusion let me conclude. the taylor rule has been extensively used to understand the interest rate setting behaviour of central banks across the world. recent empirical work including the simple characterisation i have presented here suggests that a taylor - type rule could be a useful additional tool in understanding the interrelationship among growth, inflation and policy interest rate as the interest rate channel of monetary transmission strengthens. at the same time, it should be emphasised that taylor rule has its limitations as exclusive emphasis on interest rates with the neglect of other variables may not be optimal for an emerging market economy like india. in my presentation if i have raised more questions than provide answers, i would have succeeded in my intention. there is a need for further research to enhance our understanding of appropriate interest rate structure which is conducive to price stability in the medium - to long - term. thank you. bis central bankers ’ speeches

in order to return to sound fiscal positions are credible, respecting fully the provisions of the stability and growth pact. this is essential to maintain the public's trust in the sustainability of public finances, which is important both for the economy to recover and for supporting long - term growth. countries subject to the excessive deficit procedure need to comply strictly with the ecofin council recommendations for correcting their deficits. many countries will need to specify further credible consolidation measures for 2010 and beyond. full and consistent implementation of the eu's legal provisions for sound fiscal policies is a prerequisite for the maintenance of their credibility as one of the pillars of the institutional framework of economic and monetary union. turning to structural reforms, the governing council welcomes the commitment of the spring european council to make full use of the renewed lisbon strategy for growth and jobs in the current situation. the updated recommendations for the euro area countries call for an accelerated implementation of reforms to support the economy, facilitate necessary adjustments and ensure a high level of growth potential. it remains essential that government support measures do not distort competition or delay necessary structural adjustment processes and that governments remain firmly committed to avoiding protectionism. we are now at your disposal for questions.