These vulnerabilities have the potential to amplify procyclicality in the financial system, drain liquidity at a time when it is most needed and, ultimately, set in motion real-financial feedback loops that threaten the stability of our economies. The decisive policy actions taken by central banks in the spring helped stabilise financial markets by alleviating liquidity stress across a broad range of market segments and by strengthening the risk absorption capacity of market participants. Looking forward, however, our regulatory landscape needs to better reflect the fact that credit intermediation increasingly takes place outside the banking sector. The current policy framework needs to be developed further with a view to strengthening the ability of authorities to limit the build-up of systemic risk in the non-bank financial sector and curb stress if and when it arises. Thank you. [1] Recent research also suggests that the marginal contribution of market-based finance to economic growth may rise as countries become richer. See Langfield, S. and Pagano, M. (2016), “Bank bias in Europe: effects on systemic risk and growth”, Economic Policy, Vol. 31, No 85, pp. 51-106; and Demirgüç-Kunt, A., Feyen, E. and Levine, R. (2013), “  The Evolving Importance of Banks and Securities Markets”, World Bank Economic Review, Vol. 27, No 3, pp. 476-490. [2] de Guindos, L., Panetta, F. and Schnabel, I. (2020), “Europe needs a fully fledged capital markets union – now more than ever”, The ECB Blog, 2 September. [3] Greenspan, A.
Over the same period, core CPI inflation has fallen from average annual rates of over 6% to 2%. One important sign of underlying change is that the volatility of economic fluctuations has declined since the mid-1980s, evidenced by the fact that there has been only one recession in the United States in the past 17 years. Improved macroeconomic policy management and such positive supply factors as generally lower commodity prices certainly have contributed to the strong performance of the US economy in recent years. Also critical has been the emergence of new technologies, specifically the adoption of “just-in-time” inventory systems, which we copied from Japan. Research at the Federal Reserve Bank of New York suggests that these new inventory systems have helped account for a significant reduction in the magnitude of inventory swings and hence less volatile growth of the US economy. The spate of recent announcements of new resource management systems by auto companies, retailers, and others suggests that we have not yet exhausted the potential benefits from such inventory and production systems. These inventory and production management techniques are just one aspect of the most significant factor that has characterized the improved performance of the US economy, which is non-farm business productivity growth. As I have noted, this had averaged about 1½% a year over the previous 20 years, but since 1995 has improved steadily.