In a shorter-term perspective the past five years appears to have been a period of unusually high productivity growth. Productivity in the business sector increased by an average of around 4 per cent a year during the years 2002-2006. From this high level, the rate of increase in productivity is now declining. At the beginning of the period 2002-2006 employment fell, but in the past two years it has increased rapidly. This is the explanation as to why growth is still high, despite the fact that productivity is now increasing at a slower rate. The statistics on productivity for the first quarter of this year are an excellent example of this. More or less the entire increase in GDP was due to the number of hours worked increasing rapidly, while productivity contributed to a very small degree. Reasons for the strong productivity growth I have now come to the first of the issues, which concerns the reasons for the strong productivity growth in recent years. BIS Review 61/2007  1  Structural changes have the greatest significance The strong productivity growth in recent years is mainly due to structural changes – deregulation of product markets, increased globalisation, increased use of information technology, and so on. Economic activity is also significant in the short term, but developments in recent years have been dominated by structural changes. Several markets were deregulated during the 1990s. This includes taxis, domestic airlines, post, telecommunications and electricity. Deregulation opens up the current market to competition, which triggers productivity.
What the New York Fed does By way of introduction, I will briefly review what my colleagues and I do at the New York Fed. The New York Fed is one of 12 regional Federal Reserve Banks that, together with the Board of Governors in Washington D.C., make up the Federal Reserve System, our nation’s central bank. The Federal Reserve is independent within our government. By law, we are charged with managing the nation’s monetary policy – taking actions that raise or lower interest rates to promote full employment and price stability. The Federal Reserve is also charged with promoting financial stability, without which we cannot achieve our economic objectives. We play an important role in the nation’s payments and settlements system, which some people call the financial system’s “plumbing”. For example, we help ensure that banks’ ATMs have cash and that the checks you write move the money to the recipient. In addition, we have a specific mandate to promote economic development in each of our regions. BIS central bankers’ speeches  1  As president of the New York Fed, I serve as the vice chair of the FOMC, the Federal Reserve committee that meets eight times a year in Washington to set interest rates and make decisions about monetary policy. The members of this committee all strive to achieve our statutory mandate of full employment and price stability. Sometimes we have different views on the specific policy choices at hand, and our policy decisions reflect a full discussion of these differences.