Following a further depreciation in the currency, rises in administered prices and the prospect of continued weak growth in productivity, inflation was thought “likely to remain above target for much of the forecast period”. But “attempting to bring inflation back to target sooner…would risk derailing the recovery” and it was therefore “judged appropriate to look through the temporary, albeit protracted, period of above-target inflation”. I don’t think this was so exceptional. There is no inflation-targeting monetary authority that behaves so rigidly as to attempt to offset all shorter-term shocks to inflation, no matter the effects on the variability of interest rates and output. As the economist Lars Svensson puts it, “in practice, inflation targeting is always ‘flexible’, because all inflation-targeting central banks not only aim at stabilizing inflation but also put some weight on stabilizing the real economy”. In the UK, this regard for the occasional trade-offs faced by monetary policy, and their implication for the planning horizon, was formally enshrined in the MPC’s remit in March 2013. The Committee is now required to “promote understanding of the trade-offs inherent in setting policy and… [to communicate] the horizon over which it is appropriate to return inflation to the target”. This description of the appropriate horizon is now a regular part of our communication, notably in the newly introduced Monetary Policy Summary that introduces both the Inflation Report and the Minutes of our meetings. What of the current situation?

Capital markets thrive on breadth and depth; and the broadest and deepest markets are those that transcend national boundaries. Companies raising funds seek liquid markets, which attract investors and lower the cost of borrowing. So it is that many Asian companies issue bonds in the Euromarkets, and technology companies worldwide aspire to be listed on NASDAQ. Investors in turn seek liquid markets, because in rapidly changing conditions, the ability to move in and out of markets at minimal cost is critical. BIS Review 50/2001  1  Fourthly, as a result of globalisation, small differences in conditions can translate into large differences in outcomes. Market participants have always placed a premium on sound and responsive regulatory systems. They seek jurisdictions that provide stable and resilient financial systems, and fair and efficient markets, at minimal regulatory cost and impediment to innovation. They prefer conducive business environments which offer good market infrastructure, favourable tax treatment, and stable economic and political conditions. And talent has always preferred attractive living conditions. They value good schools, safe homes, clean environments, vibrant social and cultural activities, and competitive remuneration. In the New Economy, both financial capital and talent have become more mobile. More open financial markets and more liberal regulatory regimes have enabled institutions to choose where to reside and operate. Countries have realised that people are the key success factor in the new economy. They have opened their doors wide to the immigration of talent, and created a single global market for those whose skills are in demand.