hope. right now the big forces include : • for australia, the closing chapters of a very large and long - running terms of trade event, with all that means in terms of economic adjustment. this coincides with a household sector no longer being in a position to play a major role in leading growth by significantly increasing its leverage, because it had already done that in the past ; • a global economy growing but only moderately, affected by considerable structural change and facing legacy effects of debt, arising from a previous period of overconfidence and under - appreciation of risk ; • a disinflationary or deflationary environment for the production of goods and commodities, and even some services, accompanied by unusually low rates of wages growth ; • extremely low returns on safe financial assets, as central bank actions have removed a significant proportion of these assets from the market, and have encouraged investors to accept interest rate risk on the remainder by providing “ guidance ”, leading to : • high and rising valuations on existing fixed assets, including dwellings, around the world, but not so much, thus far, in the way of new capital formation by most existing businesses in the “ real ” economy. to this list of “ conventional ” forces we might add : • the “ disruption ” of the increasing application of digital technology, which may mean, among other things, that growth in sales, capital formation and returns to capital are happening in entities and activities we don't measure very well – or at all. many of these sorts of forces are low - frequency in their nature. most of the ups and downs in the time series from month to month, or even year to year, on which we all expend so much energy are just temporary fluctuations around these longer - run trends. if numerical forecasts can't be very dependable, are we – the economics community – much good at predicting these long - run forces? if we look back a decade, to the sorts of things that occupied much attention, the evidence is mixed. by the middle of last decade, we had certainly noticed the change in household borrowing and spending behaviour, understood that it was important and wondered how long it could continue, and what might cause it to alter course again. in that respect, we were at least looking in one of the right places. people had also sensed that the emergence of china was starting to have important implications for australia and the global economy. that said, the strength and duration of the bis central bankers

precision that can be attached to these rather qualitative views. for a few years now the bank has sought to emphasise the idea of the outlook being probabilistic. the “ central forecast ” is simply the modal point of a distribution of possible outcomes. it is more likely, in our judgement, than any other single outcome, but the likelihood of that particular outcome is in fact not that high at all. 1 we have tried to convey this sense of imprecision by publishing “ fan charts ” and by putting ranges in tables for forecast variables over horizons longer than a couple of quarters. the point of this is to try to get people to focus less on the central number and more on the set of issues that accompany the forecasts. it seems that we have not been very successful on that score. there still seems to be inordinate attention paid to changes in the central forecast that are often no more than a couple of tenths of a percentage point. i've debated at times with our staff whether we should leave the central if, for example, the ‘ central ’ forecast for underlying inflation two quarters ahead is 2 per cent, the statistical likelihood of an outcome of 2 per cent + / – 0. 125 per cent, is about 25 per cent, if forecast errors are assumed to be drawn from the same distribution as in the past. bis central bankers ’ speeches line off the fan charts altogether. the response is that people would simply back it out of the charts. likewise, the desire i often feel to put wider ranges in the forecasts would probably still result in people just computing the mid - point of the range, ascertaining whether that had moved slightly and offering interpretation of that change. it's a natural human tendency to focus overly on small changes, perhaps because it allows us to maintain the comfortable illusion that things are predictable and controllable. but this fervent desire for precision is not supported by any demonstrated accuracy of economic forecasts. its cousin, a hankering for policy fine - tuning, is barely, if at all, better supported by the historical outcomes of economic policymaking. while small forecast changes get a lot of attention, the far more important question is whether we have recognised and understood the big forces at work. even if we cannot predict the outcomes with great accuracy, an understanding of these forces ought to help us get policy responses roughly right. and that, in the real world, is probably about as much as we dare