In 1998, the early days of the Great Moderation, GDP-at-risk was benign – that is, even in a tail outcome the level of GDP was expected to be higher three years out. Through the next decade, though central case GDP grew steadily, risks were gradually building. By 2007 a fifth percentile draw was expected to leave GDP 3.5% lower three years out. As the crisis hit, GDP-at-risk shrunk rapidly as risks crystallised. Since then, risks have been relatively stable reflecting post-crisis balance sheet repair, the implementation of comprehensive macroprudential frameworks, and relatively subdued economic activity (Chart 6). Chart 6: Risks grew during the Great Moderation but are now standard 2007  Latest  Probability density  1997  0.14 0.12 0.10 0.08  Risks increasing  0.06 0.04 0.02 0.00  -10  -8  -6  -4  -2  0  2  4  6  8  Cumulative GDP growth over 3 years (%)  10  12  14  [Chart 6 uses same data as Chart 5. For each distribution, shaded area denotes the tail; the line marks the 5th percentile]. 14  All speeches are available online at www.bankofengland.co.uk/news/speeches  14  2. Impact on growth The second set of differences between macroprudential and monetary policy concern the interaction between their objectives and growth in the short and long terms. Both monetary and macroprudential objectives apply at all times.
Resilience with a reason. That reason is the ultimate objective that unifies the Bank of England’s monetary and financial functions – the meaning of the central banker’s life which can be found in the opening sentence of our 1694 Charter – “to promote the good of the people of the United Kingdom”. It has been my honour to do so. 34  All speeches are available online at www.bankofengland.co.uk/news/speeches  34