exchange rate, measured on a trade - weighted basis, adjusted for the relative prices between new zealand and our trading partners. this captures the fact that new zealand faces many exchange rates, and a weighted measure of individual bilateral exchange rates is necessary to summarise the country ’ s exchange rate position. 25 for discussion on the role of the exchange rate as a shock absorber, see : karagedikli, et al. ( 2013 ). 26 the drivers of new zealand ’ s exchange rate are examined in mcdonald ( 2012 ). 27 graham & steenkamp ( 2012 ) outline the macroeconomic balance model. 28 for discussion on recent developments in new zealand ’ s nfl, see bascand ( 2017 ). 29 for discussion surrounding drivers of core inflation in new zealand, see kirker ( 2010 ). 30 a number of core inflation measures are discussed in ranchhod ( 2013 ). 31 “ the sectoral factor model provides a measure of core inflation that distinguishes between price movements in the two major sectors of the economy, and hence helps to identify where inflationary pressures are coming from. ” ( price, 2013, pg. 2 ). 32 for further details on the econometric assessment of the sectoral factor model, among others, see kamber & wong ( 2016 ). 11 / 11 bis central bankers'speeches

’ that are in the ‘ winner take all ( or most ) ’ of an entire industry. these superstar firms generally have lower ‘ wages - to - profit ’ ratios than their competitors, accentuating the income divergence. how do they manage this? through superior economies of scale driven by technology and brand advantages that are not easily replicable. witness facebook, amazon, google, alibaba and so on. this is also true within the financial sector, where big banks gain significant economies of scale, leaving smaller banks struggling to compete. this would be fine if it didn ’ t lead to other problems such as ‘ too big to fail ’ and excessive risk taking incentives. we are not immune to these issues locally, not by any sense of the word. but, we do have opportunities to lead the globe in positive change if we can become more long - term in our economic activity. in new zealand, we are being challenged on the environmental consequences of our efforts. we also have significant ongoing migration and urbanisation, as people want to be part of our place and together. we have creaking infrastructure and suffer from over - exuberant asset ( house ) prices. we also have persistent and stubborn unemployment and low - income challenges. this is especially so amongst pasifika and maori, despite their significant contribution to our economic and cultural wellbeing, and despite the current labour shortages. and, we have a rapidly ageing, and too often lonely, population. underlying these challenges is new zealand ’ s persistently low productivity growth – or economic output - per - person. the reasoning behind the low productivity is well understood but, apparently, difficult to combat in a coordinated, persistent, manner. an excellent paper by our own productivity commission, 1 outlines succinctly the problem of low productivity and the causes in new zealand. in large part, our low output - per - person is due to the ‘ capital - shallowness ’ of much our economic activity. this refers both to physical and human ( knowledge ) capital. new zealanders have low savings rates ( personal capital ), meaning they don ’ t tend to draw advantage from profits ( the returns to capital ). likewise, many of our larger companies are driven to pay dividends ( often offshore due to their ownership ) rather than re - invest in their own company, or new zealand more broadly. these challenges are compounded by the relatively small scale of new zealand firms, and by a low level of technology and knowledge disper