invest ( at any given interest rate ). these changes are linked to : demographics ; the rise of asia ; the legacy of too much borrowing in 1 / 6 bis central bankers'speeches the past ; slower productivity growth ; and, importantly, increased uncertainty and a lack of confidence about the future. together, these factors have fundamentally altered savings and investment decisions. the second major change is an increased perception of competition as a result of globalisation and advances in technology. the earlier waves of globalisation mainly affected firms and workers in the manufacturing industries in the advanced economies. but today ’ s wave is affecting a much broader range of industries, including the service industries. many more people now understand that somebody, somewhere else in the world, can do their job, perhaps at a lower rate of pay. this is a result of both advances in technology and the globalisation of business. i see this shift very clearly in australia, with jobs once done in sydney and melbourne now able to be done in bangalore, chengdu and manila. as a result, the number of truly non - traded jobs is shrinking. one example of this that illustrates the point is that the executive assistants to some senior executives in sydney are now located in the philippines, with the sydney - based executive clicking on an app on their computer to communicate via video link. this has been made possible by technology and globalisation. the implication of this is that the same competitive forces that were earlier felt in the manufacturing sector are now being felt in many service industries. more competition means less pricing power, for both firms and workers. there are exceptions to the general idea that globalisation and technology have increased competition – the global technology platforms being the most obvious – but most businesses and workers feel that the world has become more competitive. together, the shifts in saving and investment decisions and increased perceptions of competition are having major effects. they are leading to : lower interest rates an economic system that is less prone to inflation, at least for an extended period lower estimates of the unemployment rate associated with full employment the old signposts being less reliable than they once were. if you accept this diagnosis, the obvious question is how do we respond? i would like to make two points here. the first is that the paper by alan taylor and oscar jorda at this symposium points us in the right direction. any individual country ’ s interest rates are partly determined by global factors that are difficult to resist and often difficult to predict. this means that we need to pay close attention

low, although not as remarkably so, as they do not capture the large fall in oil prices over recent years. 2 / 13 bis central bankers'speeches this third graph ( graph 3 ) shows inflation rates for australia. the two measures shown are headline cpi inflation and the trimmed mean measure. we too have now joined the club of countries with headline inflation noticeably below the medium - term average, although we are a more recent member than many others. headline inflation here is 1 per cent and measures of underlying inflation are running at around 1½ per cent. 3 / 13 bis central bankers'speeches these low inflation outcomes globally and in australia are coexisting with low wage outcomes. in many industrialised countries, wage growth has been close to multi - decade lows and below what historical relationships with the unemployment rate would suggest. so why has this been happening? there are three main factors at work. the first – and the most conventional – explanation is that the low inflation reflects the economic slack in the global economy. economic growth has generally disappointed since the global financial crisis, weighed down by an overhang of debt. the result is that excess capacity exists in many parts of the global economy. broad measures of labour utilisation continue to suggest ongoing slack, despite unemployment rates in some industrialised economies being the lowest in some decades. and in parts of asia, there is considerable overcapacity in some manufacturing industries. this collective economic slack has reduced upward pressure on both prices and wages. the second factor is a self - reinforcing dynamic originating from the decline in headline inflation caused by the fall in commodity prices, including oil prices. with headline inflation rates so low, many workers have agreed to smaller wage increases than would have otherwise been the case, especially where expectations of future inflation are also low. the low wage increases have in turn reinforced the low inflation outcomes. 4 / 13 bis central bankers'speeches the third factor is that there has been a shift in the perceived pricing power of many workers and businesses. this could simply be the consequence of the increased economic slack but, in my view, there is something more structural going on, driven by the globalisation of markets and technology. perhaps the strongest effect of globalisation is that it increases competition. this is one reason why open markets can be such a positive force for our collective good. but, in many cases, increased competition means less pricing power, which means a lower level of prices. open markets and advances in technology mean that more businesses