from past actions by the government to deregulate industries. the removal of unnecessary government regulation started more than twenty years ago, during the administration of president ford, and gathered momentum during the carter years. it has altered the business landscape. deregulation allowed, indeed forced, businesses to focus more clearly on a marketplace that has become more competitive, with fewer constraints and increased flexibility. if economic policy is to play a constructive role in building a new world economy, policymakers must increasingly focus on policies that eliminate barriers to communication and allow the market to work most efficiently and effectively. they must develop approaches that do not hinder “ creative destruction ” but appropriately cushion its impact on workers and communities. they can encourage the information revolution by fostering policies and approaches conducive to giving investors and consumers the information they require to make informed decisions. for example, the federal reserve and the basel committee on banking supervision have strongly supported initiatives to improve the quality of national and international disclosure practices. credible financial statements and other disclosures are key means for communicating a company ’ s operating results and its overall health, as well as for making more transparent various operating activities. regarding monetary policy, central banks around the world are now endeavoring to provide stability to their domestic price levels. in some cases, this focus on price stability was undertaken in order to return credibility to the central bank after a period of unacceptable inflationary pressures. the federal reserve, with our mandate, must also seek to facilitate the transmission of the information that the price level is meant to convey. by maintaining a stable purchasing power for money, workers and firms will more clearly see the values being attached to their opportunities and more effectively make judgments about the allocation of their resources. this is a monetary policy that does not attempt to alter the information being transmitted by the marketplace but to increase its clarity and consistency. the increased openness of federal reserve decisions - reflected in announcement policies aimed at more rapid and transparent dissemination of federal open market committee decisions - also needs to be appreciated as a way to facilitate the communication to and within the marketplace in order to promote the most effective policy possible. policies for a communications era - a local perspective this perspective on economic policy extends beyond the establishment of the national monetary policy that occupies much of my time. a popular bumper sticker says, “ think globally, act locally. ” good advice. indeed, this simple maxim describes one of the great strengths of the federal reserve system. although many tend to think of the federal reserve as a washington

the past engaged in policies that artificially altered the path of domestic prices in their effort to regulate their business cycles. if the monetary authority wanted more growth above trend, it lowered money - market interest rates by expanding the stock of money. such policies were expected to bolster demand and encourage an acceleration of growth. there was the misunderstanding that somehow a long - run tradeoff existed between inflation and unemployment. but it gradually became understood that inflation eroded investor and consumer confidence and distorted behavior, both because the average of prices gave a constantly depreciating reading of the values it was supposed to represent and because relative prices provided an inaccurate reflection of comparative worth. monetary policies that intended to create growth through the inflation of prices ended up impeding markets and reducing economic prosperity. we now know that there is no long - run tradeoff between inflation and unemployment. the us experience of the last several years has also taught us that low and stable inflation is the underpinning for sustainable growth and that sustainable growth fosters the maximum creation of jobs over time. emergence of the communications era in recent decades, trade restrictions, “ beggar thy neighbor ” policies, and the pursuit of a supposed long - run tradeoff between inflation and unemployment have all been called into question and generally rejected. in part because of the communications revolution and the substantially reduced costs of transacting from great distances, businesses have sought more globally integrated production processes, and investors have required the development of financial instruments to facilitate their demand for international portfolio diversification. such developments have put enormous pressure on policymakers to loosen their grip or abandon policies that led to the misallocation of resources. tariffs have been reduced, and restrictions on the flow of goods have been eased. controls on the flow of investment capital have been eliminated in most industrialized countries, and they are rapidly coming down in many developing nations as well. in some cases, these changes were more or less forced upon the nations that adopted them. but in many instances the policies have been liberalized because of the realization that markets allocate resources more effectively than governments. trade is flourishing, gaining great momentum in the ten years since the fall of the berlin wall. total trade with foreigners now accounts for about one - quarter of total us national output - more than twice the share of the period between 1920 and 1970 and the largest trade share for the us economy in more than a century. not coincidentally, the economy has been expanding at a strong and steady rate. in addition, our economy has benefited