cheap labour from asia and central and eastern europe. at the same time, wages for high - skilled labour are on the increase. what lies behind this is skill - biased technology. automation lowers demand for low - skilled workers, since computers offer a substitute. but computers can also amplify natural advantages of high - skilled labour, as complements to labour. a talented professional can serve a much larger customer base due to new ict opportunities. financial engineering and management skills also tend to favour high - skilled labour. these are just examples, illustrating that there would be no global economy without new technology. technology has always been the driving force for change. this was the case when the invention of the printing press in the 15th century boosted the diffusion of ideas ; and it is still the case in today ’ s world, where ideas are spreading much faster than twenty years ago thanks to the internet. j. bradford delong ( 2006 ) the box that changed the world, project syndicate. imf ( spring 2007 ) world economic outlook. macro - economic consequences technological change has brought the world prosperity. in recent years, output growth has been at levels not seen since the early 70s. not just western economies are growing fast. china and india are integrating in the world economy at full speed. china ’ s average productivity growth over the last ten years was close to 10 %. average productivity growth in emerging and developing countries has also increased, to 5 % last year. 3 despite a recent pick - up, productivity growth in latin america is lagging that in other emerging markets. although technology is a source of welfare, it can also have negative side - effects. for instance, the unprecedented speed at which ideas are passed between people is a key achievement of the ict revolution. but it also allows bad ideas to travel fast, such as religious fundamentalism. i feel some sympathy for those who fear rapid technological change. but whether we like it or not, we can ’ t stop technological progress. like toothpaste, once it ’ s out of the tube, it is hard to get it back in again. the challenge is to make sure that new technologies bring change for the better. there are winners and losers from technological change, at least in relative terms. the developing world at large is benefiting from recent developments. however, some areas are losing out. on the losing end are areas that lack connections to the container - handling network and the internet. this applies to areas that lack crucial infrastructure, be it reliable

equilibrium interest rate might rise. this would be the case if the world would have moved to a permanently higher trend rate of productivity growth. the jury is still out on productivity is measured as real gdp divided by working age population. source : imf ( spring 2007 ) world economic outlook. numbers are averages over 2001 - 2005. source : dutch ministry of economic affairs ( 2005 ) visie op verplaatsing. imf ( spring 2007 ) world economic outlook. whether this is true. other things equal, a higher real equilibrium interest rate implies that monetary policy interest rates also have to move to a higher level, consistent with the new equilibrium. so, a major issue is to determine the trend rate of productivity growth. from a monetary policy point of view the question can be rephrased as : what is the level of growth at which the economy can operate without generating higher inflation? it is always difficult to determine the speed limits of an economy, but in times of change this is even more challenging. one development makes it particularly hard. that is the move from an industrial to a post - industrial society. in the 1950s, 30 % of the us labour force was employed in manufacturing. now the number is 10 %. we have moved to a service oriented society. in the service industry, capacity utilisation cannot be measured by counting idle capacity in factories. besides, productivity growth can only be estimated in an imprecise way. usually, total factor productivity is used as the key measure. it is determined as a residual : productivity growth is the increase in value added that cannot be explained by the volume of inputs used. this measure is very rough. all in all, potential output and its growth rate is more difficult to determine than it was in an industrial economy. uncertainty about potential output translates into uncertainty about the output gap between potential and actual output. it has always been tricky to base monetary policy on output gaps. research by orphanides suggests that the great inflation was to a large extent due to mismeasurement of potential output and the output gap. 6 it appears virtually impossible to determine output gaps in real time. they can only be measured in a reliable way ex post, with the benefit of hindsight. “ life can only be understood backwards, but it must be lived forewards ” as the danish philosopher kierkegaard said. this is certainly true for monetary policy, with its medium term objectives. how to cope with this? i ’ ve learnt a couple