4, among other countries. in the future, demographic trends will be of greater significance than they used to be in the past, for several reasons. first of all, the population is aging faster in the developed world, yet china will also be affected by this problem due to its one - child policy. second, the past 20 years have seen the global labour market emerge as a result of dramatic progress in information and communication technologies, lower transportation costs and reforms launched in many countries. for instance, richard freeman from harvard university estimates that with the integration of the former soviet bloc this part of the speech is based upon a draft book on globalization written by k rybinski and entitled globalizacja w trzech odsłonach, published at www. rybinski. eu. estimates available at http : / / esa. un. org / unpp /. see e. g. j hawksworth the world in 2050, pricewaterhousecoopers, march 2006. m aguiar et al., the new global challengers. how 100 top companies from rapidly developing economies are changing the world, boston consulting group, may 2006. economies, china and india into the global labour market, the number of workers available globally jumped from 1. 46 billion to 2. 93 billion people, which freeman calls “ the great doubling ” 5. the first major change caused by globalization is therefore the emergence of the global labour market in the 21st century. this has already brought about changes both in businesses ’ operating strategies and employees ’ behaviour. the global labour market shifts jobs to places with the highest effectiveness and lowest cost of manufacturing. for poland, this means a large inflow of foreign direct investment despite a halt in privatization. in the global labour market, employees move to places where they are better paid for their skills. according to various estimates, about 5 % people at working age have already left poland. for estonia, this figure stands at as much as 10 %. in the global economy of the 21st century, technological progress and lower transportation costs have allowed for the business processes or their parts to be easily moved between countries ( a phenomenon frequently described as business process offshoring ). the relative role of crucial factors behind long - term development prospects is thus changing. in the 21st century, the key factor conducive to economic growth will be knowledge – broadly understood as a country ’ s intellectual capital – and this country ’ s ability to drive innovation. if businesses in a given

experience that high inflation imposes greater costs and fewer benefits than previously thought, then the equilibrium will adjust toward one with lower inflation and lower inflation expectations. this line of explanation of how economies move between monetary regimes, which has been explored by sargent and others, strikes me as quite plausible as a historical description ( sargent, 1999 ). in sum, many of the most interesting issues in contemporary monetary theory require an analytical framework that involves learning by private agents and possibly the central bank as well. implications of anchored inflation expectations why do we care about the variability of inflation expectations? as my colleague rick mishkin recently discussed, the extent to which inflation expectations are anchored has first - order implications for the performance of inflation and of the economy more generally ( mishkin, 2007 ). mishkin illustrated this point by considering the implications of the fact that inflation expectations have become much better anchored over the past thirty years for the estimated coefficients of the conventional phillips curve, which i define here to encompass specifications that use lagged values of inflation to proxy for expectations or other sources of inflation inertia. as he noted, many studies of the conventional phillips curve find that the sensitivity of inflation to activity indicators is lower today than in the past ( that is, the phillips curve appears to have become flatter ) ; 1 and that the long - run effect on inflation of " supply shocks, " such as changes in the price of oil, also appears to be lower than in the past ( hooker, 2002 ). these findings are of much more than academic interest. to the extent that the phillips curve may have flattened, inflation will now tend to be more stable than in the past in the face of variations in aggregate demand. ( of course, this can be a good thing or a bad thing, depending on whether inflation expectations are anchored in the vicinity of price stability. ) likewise, a lower sensitivity of long - run inflation to supply shocks would imply that such shocks are much less likely to generate economic instability today than they would have been several decades ago. notably, the sharp increases in energy prices over the past few years have not led either to persistent inflation or to a recession, in contrast ( for example ) to the u. s. experience of the 1970s. various factors might account for these changes in the phillips curve, but, as mishkin pointed out, better - anchored inflation expectations – themselves, of course, the product of monetary policies that brought inflation down and have kept it relatively stable – certainly play