They are chosen not because they are probable outcomes, but precisely because they are improbable contingencies against which it would be useful to safeguard, consistent with the Hippocratic oath. One adverse scenario is that the economy could stall in its recovery, deflationary forces could set in and monetary policy could be trapped for a protracted period at the zero lower bound. This is not so much secular stagnation as secular deflation. And you do not have to look too hard to find real-world examples. The most widely studied is, of course, the Japanese experience since the bursting of its bubble in the early 1990s. In the quarter-century since, nominal GDP in Japan has barely budged. And while real GDP growth in Japan has averaged 0.7% per year since 1997, this has been offset by a persistent fall in prices of, on average, over 1% per year. Similar deflationary concerns, albeit on a lesser scale, have been voiced recently in the euro-area. So how great are these risks in the UK today? At least to my ear, the mood music is different. From its trough, real GDP in the UK has risen by 7% and nominal GDP by 19%. UK real GDP has risen at or above trend for each of the past four quarters. It is expected to continue  4  Varian (2014), Tuckett et al (2014). 5  For example, the Blue Brain project is setting out to reconstruct the brain piece by piece by building a virtual version in a supercomputer (see http://bluebrain.epfl.ch/page-52063.html).
Bunn, P, Domit, S, Piscitelli, L, Rostom, M, Worrow, N “The financial position of British households: evidence from the 2013 NMG Consulting survey”, Bank of England Quarterly Bulletin 2013Q2. Farmer, D and Hepburn, C (2014) “Less precision, more truth: Uncertainty in climate economics and macroprudential policy”, Institute for New Economic Thinking, forthcoming. Hansen, L and Sargent, T (2010) “Wanting robustness in macroeconomics”, Handbook of Monetary Economics. Met Office (2014) “How accurate are our forecasts?”: http://www.metoffice.gov.uk/aboutus/who/accuracy/forecasts. Stein, J (2014) “Incorporating Financial Stability Considerations into a Monetary Policy Framework”, speech given at the International Research Forum on Monetary Policy, Washington DC. Summers, L (1985) “On economics and finance”, Journal of Finance, 40(3) Tuckett, D, Smith, R and Nyman, R (2014) “Tracking Phantastic Objects: A Computer Algorithmic Investigation of Narrative Evolution in Unstructured Data Sources”, Social Networks. Varian, H (2014) “Big Data: New Tricks for Econometrics”, Journal of Economic Perspectives, 28(2). 8  BIS central bankers’ speeches