##gnment is sufficiently obvious that one can be confident enough to take the risk. but i need to be clear that such situations are likely to be rare indeed. and the risks may be considerable. we are talking about circumstances where monetary policy may well have to be quite tight - tighter than would be the case if the sole objective was to keep consumer price inflation within the target range. in such circumstances, i expect many audiences would say that the bank was unnecessarily squeezing growth from the economy. it would be a foolhardy central banker who would take such risks lightly. that said, as i interpret my mandate, it does permit me to take such risks in rare circumstances. as i explained in an earlier speech, the pta clearly requires monetary policy to be forward - looking. normally, we would think in terms of the next three years. but, as i indicated then, there will be exceptions. given the potentially long - lived nature of asset price misalignments, it may occasionally be helpful to take a longer view of when risks might eventuate, how best to insure against them, and at what price. as a recent imf study 2 has pointed out, in effect an asset price boom can change the trade - off between current and future macroeconomic objectives. a new element enters the picture, which involves trading off the risk of severe economic dislocation further down the track with the near - term cost of reducing that risk. recent new zealand house price developments in context the next and obvious question is whether or not the recent run up in house prices in new zealand constitutes a bubble so severe that it warrants a one - off additional monetary policy response, as described. such a response would drive overall inflation to near the bottom or even below the 1 to 3 per cent target range in the pta, thereby letting the air out of the bubble to avoid a collapse later. the immediate answer is no, though of course, in terms of the day - to - day controlling of consumer price inflation, housing is still the biggest thing being faced at the moment. over longer periods of time, real house prices are determined by the balance between underlying demand and supply conditions. there are nevertheless some important idiosyncrasies to housing markets that should be borne in mind. on the demand side, such factors include demographics, migration, growth in household disposable income, features of the tax system and the average level of mortgage interest rates. on the supply

madis muller : the issues that shape the capacity for growth in the estonian economy speech by mr madis muller, governor of the bank of estonia ( eesti pank ), ljubljana, 8 december 2023. * * * the estonian economy has been shrinking for almost a full two years now and our society is becoming increasingly concerned about how competitive we are as a country. that is why we will discuss at this seminar today the causes of the downturn in the estonia economy, and whether the difficulties are temporary or whether our economy has suffered a lasting blow to its capacity for growth. we should first discuss what we actually mean when we say competitiveness. competitiveness is quite a straightforward concept at the level of companies and business, as a competitive company is one that can sell its goods and services and expand its business at the expense of companies that are less competitive. this may be because its prices are better, or because it has some quality other than price that attracts buyers. companies that are not competitive have to change what they do or close down. the competitiveness of an economy is a more complex concept though. a competitive economy is one that can successfully introduce new technologies and invest in innovation, while also attracting new investment and skilled labour, and creating an environment in which businesses can thrive. this suggests that a competitive economy is one where productivity is increasing, and consequently so is the wealth of the population. we can distinguish between competitiveness over the short term and the long term. short - term competitiveness is above all competition on prices and costs. over the longer term though, competitiveness in an economy is affected by factors like demographic change, the level of education of the population, the availability of skilled labour, the amount of capital available, the degree of innovation and research and development in the economy, the quality of management of businesses, and institutional issues like bureaucratic complexity and tax regulation. there are also factors within competitiveness that we can influence ourselves at either the national level or the company level, and other factors that we have no power over, such as geographic location or the climate. then there are other factors in between these that we as a state can partly shape, such as european union regulations, or climate goals and the internationally agreed standards and costs for meeting them. the economic forecast published by the european commission in november expects estonia to suffer the deepest recession of any country in the european union this year, as it estimates gdp in estonia will contract by 2. 6 % this year. 1