if it were to occur, it would be an example of the type of imbalance that could threaten the end of the expansion, and therefore threaten the downward trend in unemployment. wage surges ended two of the past three expansions - it is important that it does not happen again this time. i think good sense will prevail, and that anyone who is encouraging “ double compensation ” will think again. conclusion i think we have still got a long way to go in this expansion. it is already longer than its predecessors, and if we as a community are sensible and do not allow short - term thinking to overcome our long - term interests, it could rival in length the expansions of the 1950s and 1960s. as for monetary policy, we think it can play a very important part in achieving that end. inevitably, there will be those who agree and those who disagree with what we are doing. we think, however, that monetary policy should be judged, not by any particular movement in interest rates, which will always be surrounded by some element of controversy, but by its performance over the whole of the expansion.

91 q2 to 99 q3, for us 91 q1 to 99 q3. talk today, but before i get into it, i would like to ask your indulgence to detour through the age - old subject of the business cycle. the business cycle economists have been analysing the business cycle for a century or more. from time to time after a long expansion, a few feel emboldened enough to suggest that perhaps we have seen the end of the business cycle. this happened in the very early - 1970s, and a few people are canvassing the idea now as part of the concept known as the “ new economy ” or “ new paradigm ”. while there is undoubtedly substance in these ideas, some of you may be disappointed to know that i am not a member of the school that thinks the business cycle has been banished, although i am happy to recognise that increased productivity growth in the 1990s has made the task of macro - economic management somewhat easier than formerly. the most obvious benefit of this from the monetary policy perspective is that the overall rise in interest rates needed to prevent a potential inflationary situation developing now seems to be a good deal smaller than previously. there are two main mechanisms that lie behind the business cycle : 1. a business cycle of some sort may be the inevitable result of interactions involved in a complex dynamic system such as an economy. we know that cycles are the norm for such natural phenomena as the weather and animal populations, and some tendency in this direction is also probably intrinsic to economic behaviour. the first nobel prize in economics was awarded to ragnar frisch for work on how business cycles can be propagated in simple models of the economy, and others such as samuelson and hicks expanded on this. 2 more recently, the real business cycle3 school of economists have taken this in a new direction by regarding all cycles as being a natural result of changes in the supply side of the economy. i do not want to take any of this too literally, but i would agree with one conclusion that comes out of all this work, namely that it is probably unrealistic to expect a dynamic system like a modern economy to expand in a smooth line ; its natural progression is probably characterised by some element of cyclicality. 2. a business cycle may be viewed as resulting from policy mistakes. in this view, policy is kept expansionary for too long during the upswing, resulting in the build - up of serious distortions or imbalances - principally inflation