Also, as prices become more closely tied to global rather than domestic conditions, the perception of any trade-off between inflation and domestic unemployment weakens. Thus we can expect to see globalisation triggering public support for central banks’ price stability goals, which in turn would become more credible, enhancing the monetary authorities’ ability to deliver. Structural considerations aside, there is an ongoing debate about whether globalisation is already pushing inflation down. I would say cheaper imports would normally affect inflation favourably, though the scale and persistence of this type of effect is uncertain. But globalisation is not just about greater trade flows or about the effect of worldwide competition on goods and services markets. As far as wages and prices are concerned, the effects of internationalisation on the labour market are probably more important. If workers fear that their companies will move abroad, this can affect their wage demands, which can in turn temper the growth of production costs and consumer prices. Immigration acts in a similar way, easing demand pressure in the labour market and thus containing wage increases. As I see it, labour market globalisation has already had a visible effect on wages in Europe and in other industrialised areas. Wage restraint has helped subdue inflationary pressure in the euro zone, despite recurrent supply shocks. The result has been an accommodative policy stance for much of the life of the monetary union, as at present.

And second, as immigrants are much more mobile than natives – both across and within borders – labour supply becomes more responsive to changes in economic conditions. This helps reduce labour market tightness in the presence of positive demand shocks, and softens upward wage and price adjustments. Therefore, the higher mobility of immigrants across countries, sectors and occupations gives a better output-inflation trade-off. In other words, we can sustain bigger and longer-lasting expansions with more moderate effects on inflation. But the cross-border mobility of immigrants is greatly affected by how strict the receiving country’s immigration policies are. Immigrants will return home more willingly, or move temporarily to an alternative destination, when re-entry is easier. Governments should take this into account when designing immigration policies, and co-ordination among European countries in this area also needs to be stepped up. I believe that cross-country labour mobility brings sizeable benefits for global economic prosperity. But high immigration also poses many challenges, not least the social assimilation of the new foreign residents. Here we need effective policies to hold the rate of immigration at the right level. There is little doubt that immigration cannot carry on increasing indefinitely at high rates. And we must not forget that the favourable effects on inflation may gradually fall off as inward flows of foreign workers diminish. As immigrants are more willing to substitute consumption for leisure, we might expect their participation rates and the number of hours they wish to work to be higher than those of the native population.