globalisation is already pushing inflation down. i would say cheaper imports would normally affect inflation favourably, though the scale and persistence of this type of effect is uncertain. but globalisation is not just about greater trade flows or about the effect of worldwide competition on goods and services markets. as far as wages and prices are concerned, the effects of internationalisation on the labour market are probably more important. if workers fear that their companies will move abroad, this can affect their wage demands, which can in turn temper the growth of production costs and consumer prices. immigration acts in a similar way, easing demand pressure in the labour market and thus containing wage increases. as i see it, labour market globalisation has already had a visible effect on wages in europe and in other industrialised areas. wage restraint has helped subdue inflationary pressure in the euro zone, despite recurrent supply shocks. the result has been an accommodative policy stance for much of the life of the monetary union, as at present. as you can imagine, on the ecb governing council we closely track labour negotiations in several countries, as the outcomes can directly affect the prospects for price stability. immigration in several euro zone economies, and notably in spain, it is immigration that has had the biggest economic impact. immigration to europe has surged and taken several forms. sometimes you will see workers move permanently from one country to another. in other cases, they move back and forth. what is happened is that immigrants have not only increased the labour force in the euro area ; they have also brought more flexibility and dynamism to our labour markets. since the turn of the century, spain ’ s immigration rate has been the highest in europe. once an emigration country, spain ’ s foreign resident population rose from just over 900, 000 in the year 2000 to 4. 2 million in 2006. as a result, spain ’ s population has increased by a number roughly equivalent to the total population of ireland in just six years, as a result of immigration. the proportion of immigrants in other western european countries may be bigger yet, but it is hard to find examples in recent times of such a large influx of immigration in such a small period of time. clearly, what has attracted the immigrants to spain rather than to other euro - zone countries has been the long economic upturn that has already lasted thirteen years. to give you another idea of what immigration has meant for the spanish economy, let me tell you that foreign residents accounted for nearly the

miguel fernandez ordonez : immigration and the inflation moderation debate speech by mr miguel fernandez ordonez, governor of the bank of spain, at the symposium “ the phillips curve and the natural rate hypothesis ”, kiel institute for the world economy, kiel, 3 june 2007. * * * introduction it is a pleasure to be here today at this symposium in such distinguished company. the organisers have put together an impressive programme on a key topic for policymakers and central bankers in particular. as you know, the relationship between inflation and economic activity has always been at the heart of the macroeconomics discipline. and theoretical developments in this field have had a significant and direct influence on actual monetary policymaking. we are currently in a unique situation. for an unusually long period, in the context of high global growth, inflation has remained low and stable. many commentators – and not only central bankers – would agree that better - managed monetary policy has had a lot to do with this favourable inflation performance. and there is a lively debate about which specific aspects of monetary policymaking have been responsible for it. let ’ s look at three questions this debate has raised. first, do central bankers now have better knowledge of the economy and of monetary policy transmission and, consequently, are adopting more effective decisions? second, have monetary policy regimes shifted towards making price stability a more prominent target? and third, have structural changes in the world economy, such as the globalisation of capital, production and labour, made the job of central banks easier? i will deal with all three questions today, but particularly with the effects of globalisation. i will focus mainly on labour market aspects, taking the immigration we have seen in spain in recent years as an example of the positive effects that globalisation can have on inflation. what is behind the recent success of central banks ’ in combating inflation? recent studies have given the credit for reducing the high inflation of the'70s and early'80s to the central banks ’ better knowledge of the economy. in my view, these studies have got it right. we have to admit that, at least in some countries, monetary policy didn ’ t do all it could in the'70s to contain the oil shock - induced inflation of that time. perhaps at that time, central banks lacked understanding of how supply shocks affect the output gap, as well as of the role of inflation expectations, and how these relate to monetary policy actions. but i don ’ t think that insufficient knowledge of the economy