minimum wage, the interest rate charged on a particular loan, or my bank balance. a somewhat less straightforward set of concepts are those that aren't quite directly observable, but are measurable, perhaps with some effort. often these are collective measures of related individual quantities that are not completely homogeneous. they include things like the unemployment rate or inflation. individual employment statuses and individual prices can in principle be directly observed. but you have to make choices about how to combine those individual states into an economy - wide statistic. harder still are the things that are unobservable but are inferable, because they can be detected indirectly. this might be because of the effect they have on something that is more easily observed. a good example here is the nairu – the rate of unemployment below which wages growth starts to pick up. you can't observe it directly, but you can guess that you are below it if wages growth is accelerating. another kind of inferable is the subjective view someone has about an observable or measurable quantity. expectations and forecasts fall into this category. you can't directly observe the expectation inside somebody's head, but you can ask about it. and because it's a belief about something more concrete, people should be able to elicit those beliefs. so the two unobservable things in our phillips curve are, at least in principle, inferable. but they aren't directly measurable and it is reasonable to expect that they might be estimated with considerable error. finally, though, there are important economic concepts for which measurement can only be regarded as impossible. sometimes this is because they are complete abstractions, where measurement depends entirely on an assertion that some observable thing is ‘ really ’ the abstract thing. think of things like ‘ social capital ’, ‘ ease of doing business ’, or ‘ animal spirits ’. what are they, and how would you know if they are changing? other impossible concepts include qualities of people's preferences or beliefs that they can't reasonably be expected to elucidate. these include time preference, risk preference, and elasticities of substitution. if a pollster called you tonight and asked you about your rate of time preference or the curvature of your utility function, could you tell them? now, maybe you could elicit somebody's time preference or risk appetite indirectly by watching people's behaviour as circumstances changed. this is what we mean by ‘

trend lies is especially important for forecasting. our assessment of trend growth in productive capacity will affect our view of how quickly spare capacity might be absorbed. our assessments of trend growth in the population and in productivity both affect our view of trend growth in productive capacity. and so on. you can bring data to bear on these questions. in the end, though, you also have to make a call about how fast trends can change. again, that is complicated because the trend is invisible and has to be inferred. given that much of my talk has used the nairu as an illustration of the issues surrounding invisibles, it's worth noting that another important, yet invisible, trend is the trend in inflation expectations, the other invisible in the phillips curve. there are many different measures of expectations, capturing different horizons of the future and the views of different groups in society. there will inevitably be both measurement noise and a variety of biases in these individual measures. it is important to cut through that noise and estimate a sensible measure of the trend. again, both data and a judgement about the smoothness of that trend must be brought to bear on that assessment. when invisibles are consequential no matter what kind of invisible something is, there are clearly times when invisible things can be consequential. the nairu is the perfect example of this. the bank's estimate of the level of the nairu is important for our assessment of the state of the economy and the appropriate stance of monetary policy. the unemployment rate is currently around the lowest it has been in recent decades. only in the mid 2000s, in the midst of the mining boom, was unemployment lower than the 5 per cent rate that it reached late last year. in that previous episode, wages growth and inflation were picking up strongly and some parts of the economy showed signs of overheating. in contrast, wage and price pressures are low at present, even though unemployment is only a bit higher than during the mining boom. we infer from this that there is still spare capacity in the labour market. one might want to conclude that the reason wages growth has remained low is that some special factor is preventing it from increasing. there are all sorts of factors one might point to, including government wages caps, changes in competitive pressures or bargaining power, or increased feelings of job insecurity. and maybe they do matter separately from the level of the nairu. but a more comprehensive explanation – and in my view