The reform initiatives have also focused on enhancing capital and liquidity standards, reinforced by moves to strengthen the macro-prudential orientation of regulation to complement micro-prudential supervision to manage the risks arising from the interdependencies within the financial system. Whilst the breadth of regulatory changes being considered collectively endeavor to strengthen financial system resilience, the key challenge for policymakers and regulators going forward is also to achieve inclusive and more sustainable growth, whilst ensuring financial stability. Whilst Islamic finance has benefited from a well-developed, more competitive and well regulated eco-system, it needs to build on and reinforce the solid foundations that has been achieved in this decade. As the industry transitions into a new era of growth and development in this post-crisis world, the competitive financial landscape is being redrawn by the evolving international regulatory reforms, changing operating models, rising consumer expectations and increased competition. In this more challenging environment, the success of sustaining the momentum of Islamic finance as a transformative agent for the economy, will hinge on the ability to keep raising the bar in the pursuit of an effective functioning and sound Islamic financial system. Post-crisis, the increased emphasis for inclusive and sustainable products as well as responsible corporate behavior provides clear potential for Islamic financial players to demonstrate leadership by capitalizing on core value propositions of Islamic financial intermediation.
Interestingly, I find evidence in the early (pre-1988) sample that suggests that inflation was, if anything, more sensitive to the unemployment gap when unemployment was high, rather than low. Although these estimates are imprecise, this pattern is the opposite of the claim by HMS, which relies on full-sample estimates to draw conclusions. This also runs counter to HMS’s historical narrative about the 1960s and the dangers of a red-hot labor market. I will not dwell on this further, but it is a reminder that findings of nonlinearities in Phillips curves are often not robust. The apparent breakdown in this simple price Phillips curve in the past 30 years reflects a number of structural changes in the U.S. economy. The Federal Reserve’s success in re-anchoring inflation expectations at a low level can explain the decline in inflation persistence seen in the data.1 However, the role of well-anchored expectations in flattening the Phillips curve is not obvious, and as HMS note, this flattening is not as clear in the wage inflation equations. This suggests other forces are at work. Several usual suspects come to mind, including the effects of supply shocks, increased globalization of goods markets and supply chains, and changes in the market structure for consumer goods.