“Does Inflation Targeting Matter?” Ball L., Sheridan N. in: ”The Inflation-Targeting Debate” Bernanke B.S., Woodford M. (2005). BIS Review 57/2006  7  outcomes (lower costs of stabilising inflation, decreased influence of price shocks and output shocks on inflation, thereby - decreased effect of past inflation on the current inflation, which reduces inflation persistence) 24 . Empirical research also suggests that the DIT strategy facilitates stabilisation of longterm inflation expectations 25 . An additional result of dissemination of the DIT strategy is elaboration of standards of communication in conducting the monetary policy (announcements of decision-making authorities, inflation reports and published inflation projections), which facilitate contacts of the central bank with the external environment (the financial market and the general public). It may be speculated that these standards make the interpretation of the decisions made by the central bank easier for foreign investors, which should, under the huge cross-border capital flows, increase the effectiveness of the monetary policy in stabilising inflation. Re 6) As mentioned before, the process of globalisation is a serious challenge for central banks. Following the increase in human workforce relatively to the capital resource, the pay of the workforce has gone down, and so did the costs of manufacturing of many goods and services. Setting fuel prices apart, whose increase is also brought about by globalisation, inflation in many countries remains very low, whereas a strong increase in the global labour supply mitigates the possibility of occurrence of the second-round effects i.e. wage increases in response to a rise in current inflation.

What does that mean to the monetary policy? If domestic and foreign financial assets are treated more and more as perfect substitutes, domestic interest rates, especially mid- an long-term ones, are determined on the global market, and thus the influence of particular central banks on their level is weakened. This phenomenon is already observed in the USA. 12  Melick W., Galati G. “The Evolving Inflation Process: an Overview”, BIS Working Paper No 196, 2006. 13  Hannoun H. “Internationalisation of financial services: implications and challenges for central banks”, Conference of the SEACEN Governors Bandar Seri Begawan, Brunei Darussalam, 4 March 2006. 14  McKinsey Global Institute, $ Trillion and Counting: Taking Stock of the World’s Capital Markets, February 2005. 15  In 1980 bank deposits accounted for 45% of total financial assets, currently their share dropped to 30% (McKinsey Global Institute 2005 – ibidem). 16  It is called the Feldstein-Horioka puzzle, after the two economists, who were the first to empirically prove its existence (Feldstein, 2005). 17  Feldstein M. Monetary Policy in a Changing International Environment: The Role of Capital Flows, NBER Working Paper 11856, 2005. 6  BIS Review 57/2006  Although the key interest rate of the central bank has been raised from 1.00% in 2004 to 4.75% at present (i.e. by 3.75 percentage points), long-term interest rates, which are more important from the aggregate demand perspective, have remained roughly unchanged 18 .