) over the period indicated. data up to 2002 q2. source : bank of england calculations based on ons data. it is, of course, difficult to identify the effect of changes in the monetary policy regime on the path of total output. one approach is to consider long runs of data which make it easier to identify structural breaks in the behaviour of output. luca benati of the bank of england has been investigating the statistical properties of inflation over long periods for a number of countries. he finds that changes in the behaviour of inflation appear broadly to coincide with changes in the monetary policy regime. some tentative evidence that this general conclusion applies to the uk can be found in the behaviour of ten - year forward interest rates on uk government bonds. at this horizon, high and variable interest rates are signs of high expected inflation and a large inflation risk premium. as shown in chart 3, the ten - year forward interest rate has fallen significantly in recent years, and has been less variable since inflation targeting, and especially the mpc, were introduced. what is the mechanism by which monetary policy contributes to a more stable economy? i would argue that monetary policy is now more systematic and predictable than before. inflation expectations are anchored to the 2. 5 % target. businesses and families expect that monetary policy will react to offset shocks that are likely to drive inflation away from target. in the jargon of economists, the “ policy reaction function ” of the bank of england is more stable and predictable than was the case before inflation targeting, and easier to understand. more simply, monetary policy is not adding to the volatility of the economy in a way that it did in earlier decades. the behaviour of monetary policy in the united kingdom after 1992 more closely resembles a “ taylor rule ” that has been shown to fit data in the united states than was the case before 1992. see the work of ed nelson of the bank of england ( nelson 2000 ). chart 3 ten year forward rates in the uk 1970 - 2002 note : implied forward nominal rates on conventional gilts ten years hence, calculated on the last business day of the month. source : bank of england. 3. the case for price stability : what have we learnt over the past 10 years? the costs of departing from price stability - either inflation or deflation - depend upon whether it is expected or comes as a surprise. in his 1992 lecture, lord kingsdown distinguished three costs of unanticipated inflation and four of anticipated inflation. i shall focus

transactions as we strive towards seamless global inter - linkages. standardised documentation and practices for a number of products have already been adopted between jurisdictions through bilateral and multilateral agreements. this has facilitated issuance of financial market instruments, contributing towards enhanced liquidity in islamic financial markets and greater inter - market linkages. greater understanding and clarity on shariah matters, will also contribute towards convergence and harmonisation of such interpretations across jurisdictions and thus contribute towards the development of islamic financial products and services. realising cross - border potentials and bridging economies with its international outreach and ability to provide comprehensive financial solutions, islamic finance beckons us with a new frontier that presents new opportunities. as we enter into a more uncertain global environment, it also promptsus to revisit strategies to enhance the resilience of islamic finance. the theme of this year ’ s global islamic finance forum 2012, “ internationalisation of islamic finance : bridging economies ” focuses on the international prospects surrounding the islamic finance industry and its tremendous potential role in strengthening cross - border economic linkages. more than 500 participants from over 50 countries across the continents gather today in this forum to explore this prospect. in its featured plenary and multi - track programmes which include the regulators forum, the international shariah scholars forum, the global islamic liquidity management conference and the global islamic finance taxation forum, a new highlight is the bridging economies forum that aims to discuss the islamic finance prospects and opportunities across regions, and to explore possible market linkages that can be generated through islamic finance. several important signings of mous will also be taking place during this forum, highlighting increased commitment and international cooperation. let me now conclude with an extension of our appreciation to the panel of distinguished speakers for their contribution to giff 2012. i would also like to once again, express our gratitude to the honourable deputy prime minister of the republic of turkey, his excellency mr. ali babacan for being with us today to speak at this event. bis central bankers ’ speeches