253. frankfurt : european central bank, january, https : / / www. ecb. europa. eu / pub / pdf / scpops / ecb. op253 ~ 5a3d5de1d1. en. pdf. maggiori, matteo, brent neiman, and jesse schreger ( 2019 ). “ the rise of the dollar and fall of the euro as international currencies, ” american economic review, vol. 109 ( may, papers and proceedings ), pp. 521 – 26. pierce, justin r., and david yu ( 2023 ). “ assessing the extent of trade fragmentation, ” feds notes. washington : board of governors of the federal reserve system, november 3, https : / / doi. org / 10. 17016 / 2380 - 7172. 3387. weiss, colin r. ( 2023 ). “ financial flows to the united states in 2022 : was there fragmentation? ” feds notes. washington : board of governors of the federal reserve system, august 4, https : / / doi. org / 10. 17016 / 2380 - 7172. 3322.

07 - 25. html 4 / 14 7 / 25 / 2019 inflation targeting and economic welfare | speeches | rba the second explanation for low inflation is the continuing existence of spare capacity in parts of the global economy. the existence of spare capacity was an important factor explaining low inflation in the aftermath of the global financial crisis. and today, it remains a factor in some countries, including here in australia. but, on the surface, it is a less convincing explanation for low inflation in countries where unemployment rates are now at multi - decade lows. based on conventional measures of capacity utilisation, these economies are operating close to their sustainable limits. one explanation for continuing low inflation in this environment is that the current rate of aggregate demand growth is simply not fast enough to put meaningful pressure on capacity. if so, stronger demand growth would be expected to see inflation pick up. another possibility is that the unemployment rate, by itself, no longer provides a good guide to spare capacity, partly due to the flexibility of labour supply. i will come back to this idea in the discussion of inflation outcomes in australia. the third explanation is that globalisation and advances in technology have changed pricing dynamics. there are two main channels through which this appears to be happening. the first is by lowering the cost of production of many goods. and the second is by making markets more contestable and increasing competition. the main effect of these changes should be on the level of prices, rather than on the ongoing rate of inflation. but this level effect is playing out over many years, so it appears as persistently low inflation. it is widely accepted that the entry into the global trading system of hundreds of millions of people with access to modern technology put downward pressure on the prices of manufactured goods. reflecting this, goods prices in the advanced economies have barely increased over the past couple of decades ( graph 4 ). but the effects of globalisation and technology extend beyond this and into almost every corner of the economy, including the services sector. https : / / www. rba. gov. au / speeches / 2019 / sp - gov - 2019 - 07 - 25. html 5 / 14 7 / 25 / 2019 inflation targeting and economic welfare | speeches | rba graph 4 in today's globalised world, there are fewer and fewer services that can be thought of as truly non - traded. many services can now be delivered by somebody in another country. examples include : the preparation of architectural drawings, document design and publishing, customer