The official sector, internationally, could, in my view, probably help – both researchers and itself – by producing data on financial flows and stocks as rich as the real economy data we collect. I have in mind things like the Federal Reserve’s “Flow of Funds” statistics. As well as being of immediate practical use, over time there would be benefits from the richer empirical research it would allow your community to conduct. The underlying thought is that, until we know more about risk premia, we should not give up tracking quantities. Doing so in the future might aid comprehension of the risks in the financial system. The challenge for policymakers is no smaller than that for researchers. We must tackle the task at hand with the tools we have. There are substantial risks to inflation in both directions over the medium term. But at present, the most likely prospect remains that, as the global economy slows, accumulating slack in the economy will head off the upside risks to inflation. That strategy relies not only on real-economy interactions, but crucially on the credibility of the target and the Committee. Above all else, therefore, we must be clear about our mandate: to deliver stable inflation, at 2%, over the medium term. they tell the end of the story, when all relative prices have been determined, whereas we want to enrich our grasp of the narrative so that we can influence the end of the story.
All the prominent scholars who are presenting papers today will analyse some of the aspects of how and why market risk premiums vary. Financial regulations and financial frictions are  BIS central bankers’ speeches  1  important to our understanding of why risk premiums change over time. A thorough understanding of financial regulations and financial frictions might also be important in identifying unique investor characteristics. Axel Weber will shed light on the implications of financial sector regulation on the functioning of markets and the pricing of assets. Lasse Pedersen has provided valuable research on the micro structure of funding markets and how liquidity risks create systemic problems. In particular, he will cover frictions in financial markets. It is quite clear that the Government Pension Fund differs from the average investor in important respects. In addition, we need to understand how variation in risk premiums can be consistent with highly competitive financial markets. Why don’t all investors buy “value” or rebalance? Ken Froot will talk about rare events and disaster risks, how these events are priced in markets. He will also give insights on individual investor characteristics which give comparative advantages in holding these priced risk premiums. Ken French will speak about two ways for an investor to generate excess returns: informational advantages and systematically harvesting risk premiums which the investor has a comparative advantage in holding. Both Froot and French will mainly talk about average portfolio weights in highly competitive markets.