since the mid 2000s, the total number of nights that australians spend away from home in australia has fallen by around 12 per cent, despite the population increasing by 10 per cent. the high value of the australian dollar has lowered the relative price of overseas travel and australians have responded by travelling abroad in ever increasing numbers. conversely, as australia has become a more expensive destination, growth in overseas arrivals has slowed noticeably ( graph 12 ). given these trends, it is not surprising that the tourist industry ’ s share of total employment has fallen over the past decade. bis central bankers ’ speeches graph 12 another area where the effects of the changes in relative prices are apparent is in the composition of australia ’ s exports ( graph 13 ). during the 1990s, exports of manufactured goods and services grew strongly, at an annual rate of around 10 per cent. growth then slowed in the early 2000s and it has been particularly weak over recent years. this weakness has been quite broad based, with exports of machinery and equipment, beverages and transport services all falling over the past three years. while there are a range of factors that account for this, an important one is the higher exchange rate which has increased the price of domestically produced goods relative to world prices. as a result, in a number of the affected sectors, employment growth has been relatively slow. conditions have also been subdued recently in the retail and wholesale sectors, largely reflecting consumers ’ more cautious approach to spending. graph 13 bis central bankers ’ speeches these various shifts in the economy are occurring at a time where there is little overall spare capacity. this is quite different to the situation prevailing over most of the past 40 years. at times when there is a lot of spare capacity, all sectors can grow quite quickly without the overall economy butting up against capacity constraints. but this is not the situation we currently find ourselves in. our favourable starting point means that faster - than - trend growth in some parts of the economy will inevitably be associated with slower - than - trend growth in other parts of the economy. and the movement in relative prices will be one of the factors that help determine which sectors grow more quickly than average, and which sectors grow more slowly than average. the challenge we face is how best to accommodate these changes, and to capture the considerable benefits that they can bring, while minimizing the costs that can arise when the structure of the economy is changing. this is no easy task. but it is surely a better challenge to face than those confronting most other advanced economies

1210 - 9. pdf >. bis central bankers ’ speeches graph 1 we also know that these swings were very important for the macroeconomy. my colleague ric battellino gave a very thoroughly researched speech on this question a year ago today. 3 he looked at five major episodes, including the current one, over two centuries. let me offer a reprise of his four main observations. first, global developments have always played a part in causing the booms. changes to the availability of capital or the emergence of large, low - income countries with rapid growth prospects ( japan or china ) have often affected the price of minerals and energy. second, these booms were always expansionary for the australian economy overall. third and related, previous booms were usually associated with a rise in inflation. the exception was the one in the 1890s, which occurred when the economy was experiencing large - scale over capacity. fourth, the role of the exchange rate is crucial. the current episode stands apart from the previous ones because all those booms were experienced with a fixed or heavily managed exchange rate. this severely compromised the conduct of monetary policy, and also muddied many of the price signals that the economy needed to receive. in short, these episodes were major externally generated shocks that proved very disruptive, not least because the country ’ s macroeconomic policy framework was not well equipped to handle them. the high levels the terms of trade reached on some occasions were not permanent, but they did persist long enough to have a big impact on economic outcomes. “ mining booms and the australian economy ”, address to the sydney institute, sydney, 23 february 2010. available at : < http : / / www. rba. gov. au / publications / bulletin / 2010 / mar / pdf / bu - 0310 - 10. pdf >. the fact that we were talking about this issue a year ago, and indeed two years earlier than that, that we are still taking about it now, and doubtless will be for another year at least, says something in itself. bis central bankers ’ speeches what do we know about this boom? the main thing we know about the current episode is that it looks very large. it is being driven by a big increase in demand for key australian export commodities. global consumption of coal has increased by about 50 per cent over the past decade ; consumption of iron ore has increased by 80 per cent since 2003. back then, australia shipped around half a million tonnes of iron