The Andrew Crockett Memorial Lecture, 2017

BIS speech  | 
26 June 2017

Lecture: "The global financial system, the real rate of interest and a long history of boom-bust cycles" 
Andrew Crockett Memorial Lecture, delivered by Professor Hélène Rey (Lord Bagri Professor of Economics, O.B.E. London Business School), on the occasion of the Bank's Annual General Meeting, Basel, 25 June 2017.


Financial cycles strongly determine real short-term interest rates. Wealth increases rapidly during financial booms, faster than consumption itself. As a consequence, the consumption to wealth ratio declines, as happened in the "Roaring 20s" and the "Exuberant 2000s". In the subsequent busts, savings increase and keep real interest rates low. The related global financial cycle constrains monetary poilcy independence, even for countries with flexible exchange rates, transforming the Mundellian trilemma into a dilemmma. Tackling these issues calls for combinations of monetary and fiscal policy coordination, macroprudential policies, and possibly capital controls. It also means considering the role of the US as a provider of safe assets, and asking whether a multipolar system would be advantageous.


Panel discussion
Chairman: Jens Weidmann (Chairman of the BIS Board of Directors and President, Deutsche Bundesbank)
Panellists: William Dudley (President, Federal Reserve Bank of New York), Stefan Ingves (Governor, Sveriges Riksbank), Veerathai Santiprabhob (Governor, Bank of Thailand)