On this occasion, I will briefly present my opinion on how the region has dealt with the crisis and the lessons learnt, leaving more time for panel discussion and for the presentations of the prominent representatives of international institutions and central banks in the region. How has the region been dealing with the crisis so far? In the recent five years of global economic crisis, generally we distinguish two subperiods. The first wave of crisis broke out in the US economy in the second half of 2007 and was primarily marked by the mortgage credit crisis and the collapse of large investment banks, destabilizing the international financial markets and deteriorating the expectations of economic entities. The second wave of crisis hit Europe in mid-2010 and was recognized as euro area debt crisis, causing new financial market disturbances, lower confidence among market participants, higher costs for financing and need of recapitalization of the banking sector. Apparently, the second wave of crisis broke out in the vicinity of our region. Yet, that the countries from the region get over this period relatively unwounded. One of the potential explanations is the fact that unlike the period of first wave of crisis, the countries from the region faced the second wave of crisis with fewer imbalances in their economies, i.e. better prepared to adjust to the external environment. Facing the outbreak of crisis in the euro area was relatively painless. Yet, it does not mean that the risks have passed.
Putting these adjustments into the Taylor 1999 formulation would pull the liftoff date to 2013 (Figure 9). So, why do I believe the policy that promotes the best achievable path back to our dual mandate objectives should be more accommodative than that implied by Taylor 1999 – adjusted or unadjusted? Taylor 1999, like other simple rules, does not take into account two key considerations:   The likelihood that the relationship between monetary policy and the economy has changed significantly following the financial crisis.   The need to apply a risk-management framework to policymaking at the zero bound. I don’t believe that the standard Taylor 1999 formulation is a good guide for policy right now because the neutral real rate assumption embedded in this rule of 2 percent simply doesn’t look plausible. This is important because the degree of stimulus depends not on the current policy setting but on the difference between the current level and the neutral level. For example, a short-term rate that appears highly stimulative under standard assumptions may in fact be much less so under alternative estimates of the neutral real rate. If the neutral real  8  In contrast, optimal control simulations using FRBUS put the federal funds rate liftoff in 2015; see Vice Chair Yellen’s speech of April 12 (http://www.federalreserve.gov/newsevents/speech/yellen20120411a.htm). 9  For more details on this forecast, go to: http://libertystreeteconomics.newyorkfed.org/2012/05/ just-released-the-new-york-fed-staff-forecast-may-2012.html. 10  This estimate should be considered very imprecise.