Unconventional policies during the challenging times fast reaching limits At the onset of the Global Financial Crisis, immediate policy responses were largely targeted towards stabilising the financial markets. As volatility began to subside, and as financial institutions and markets were stabilised, the policy focus subsequently shifted to rejuvenating growth and raising employment. An immediate policy challenge facing crisis-affected countries was that conventional policy responses of expansionary monetary and fiscal policies have fast reached significant constraints. Let me elaborate. 1/8  BIS Central Banker's Speeches  In the aftermath of the crisis, public debt in crisis-affected countries reached very high levels, in large parts due to the high cost of bailing out financial institutions. In the advanced economies, public debt grew by almost half within the span of 5 years from 2007 to 2012. For Europe, it even culminated in the European Sovereign Debt Crisis. The enlarged public debt levels and fiscal deficit put a hard limit on current governments’ ability to spur real activity, even as growth falters. Many governments of crisis-affected countries undertook austerity measures to avert financial market backlash. This, of course, have had a further dampening impact on growth. In short, fiscal policy has lost its ammunition and has been rendered impotent in many countries. In many of the economies, monetary policy became the only feasible stimulus tool, so called ‘the only game in town’. However, substantial easing by major central banks has led to global policy rates reaching historically low levels.
Indeed it has been argued that rising income inequality is a direct and unavoidable consequence of the advent of technological revolution and the expanding process of globalisation. Thus, in this new economy, one of the pressing challenges may come down to reconciling the benefactors of technology and globalisation with those who are excluded, with the intention of keeping inequality at bay. This brings me to the second paradox. Despite all the technological advancements that we have experienced in recent years, labour productivity has not risen in tandem. The world is now at the cusp of path-breaking and fundamental technological changes – in the area of artificial intelligence, bio-technology, advanced analytics or ‘Big Data’, and fintech, just to name a few. But at the same time, labour productivity has been anaemic in major economies since the global financial crisis, which in the US, is currently experiencing the longest run of declining worker productivity since the 1970s3. Tangible slowdown in productivity is also prevalent in many emerging economies since the global financial crisis. This is a disconcerting trend, as productivity growth is the bedrock of sustained improvements in standards of living and income. To borrow Paul Krugman’s quote, “productivity isn’t everything, but in the long-run it’s almost everything”. It’s a real challenge, to truly understand why this is happening.