How to transition out of a "Goldilocks economy" without creating a new "Minsky moment"?

Remarks by Mr Luiz Awazu Pereira da Silva, Deputy General Manager of the BIS, and Mr Jochen Schanz, Senior Economist, on the occasion of the joint conference by the National Bank of the Republic of Macedonia and the Reinventing Bretton Woods Committee on "Monetary policy and asset management", Skopje, 16 February 2018.

BIS speech  | 
20 February 2018

A long episode of very calm markets appears to have come to an end. During the first eight days of February 2018, concerns about the joint impact on inflation of rising wage pressures against the backdrop of the US fiscal expansion and dollar depreciation challenged investors' complacency about inflation risks. Yield curves shifted up, apparently driven mostly by higher inflation expectations. The S&P 500 fell by 10%, the first sharp decline since January 2016 when market participants reacted with alarm to events in China. The VIX, a measure of expected stock market volatility, reached levels unseen since August 2015. For a moment, the risk appeared to emerge that the Goldilocks economy, with robust growth, low unemployment, and low inflation, could come to an abrupt end, giving rise to a "Minsky moment" in which speculative positions are unwound quickly, asset prices fall and the economy plunges into recession.