Period averages conceal large, long-lasting swings in growth over time (Chart 4). Their revised measures suggest growth did not flat-line prior to 1750, even though it averaged zero. Rather, growth oscillated wildly. Second, given the scale and duration of these oscillations, they decompose their growth data into “expanding” and “contracting” periods. Chart 5 plots these for the UK over the past 700 years. A broadly similar pattern of expanding and contracting periods can be found in Spain, France, Italy, Portugal, and the Netherlands over roughly the same period. This decomposition changes the growth story radically. Even prior to the Industrial Revolution, economies experienced notable periods of strongly positive growth. Between 1300 and 1700, GDP expanded slightly more than half the time. Over these expanding periods, growth averaged 5.3% per year. The reason average growth was far-lower over this earlier period – indeed,  18 19 20  Solow (1956), Mincer (1984), Romer (1990), Iyer, Kitson and Toh (2005), North (1990). Haldane (2015a). Broadberry and Wallis (2017). 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  little more than zero – was because expanding periods were almost exactly offset by contracting periods. They accounted for slightly less than half the period, during which growth averaged minus 5.4% per year. So what has changed in the period since the Industrial Revolution? Growth during expansion periods is relatively little changed. Since 1750, it has averaged 3.2% per year. That is in fact a bit less than growth during expansion periods prior to the Industrial Revolution.

It is not something exceptional for the countries implementing inflation-targeting regime to experience significant deviations from the inflation target. What matters most here is to be able to explain the reasons for the deviation, to take necessary measures to ensure that the target could be attained again and to inform the public of the convergence period. If the Central Bank had changed its inflation target for end-2006 as 10 percent, it would have achieved the end-year target and would not have been liable to be called to account to the public. However, instead of changing the target, the Central Bank preferred to render account to foster its communication policy. Within this framework, the Central Bank will inform the Government through a new open letter in January 2007 and explain the reasons for overshooting the end-year inflation target, in addition to sharing its projections pertaining to the convergence process with the public. In conclusion, the Central Bank considers that frequent changes in targets are likely to have adverse effects on inflation expectations and pricing behaviors, which could damage the credibility of the future commitments. For this reason, it is important in the upcoming period that targets should be left intact as long as inflation is expected to converge to targets within a reasonable period of time. 2  BIS Review 1/2007  Transmission mechanism and control horizon Central banks in both developed and developing countries experience serious uncertainties regarding the lagged effects of monetary policy on inflation.