fluctuations : a perspective from time - series analysis ) ”, gendai keizaigaku no chouryuu ( contemporary trends in economics ), toyo keizai inc., 2011, pp. 35 – 65 ( available in japanese ). bis central bankers ’ speeches through an improvement in the income balance, the country ’ s net assets will increase, thereby exerting positive effects on consumption. 2. people ’ s inflation expectations : forward - looking expectation formation people ’ s inflation expectations have been rising on the whole. for example, in terms of shortterm inflation expectations such as those for fiscal 2013 or for a year ahead, many indicators – including the results of surveys conducted on households, economists, and market participants – show a gradual rise. medium - to long - term inflation expectations, such as for five and ten years ahead, are also rising, according to surveys conducted on economists ( chart 14 ). let me elaborate on how people form expectations of future inflation rates. generally speaking, there are two ways to predict economic variables. one is backward - looking expectation formation, where past results are directly used to form expectations. a typical example is that the inflation rate for the previous period is simply assumed as the expected future inflation rate. in this case, expectations for future inflation rates are fixed to actual past inflation rates. the other is forward - looking expectation formation, where future inflation rates are predicted in line with the underlying mechanism of future developments in economic activity. as an example, let us simply consider the phillips curve and assume that prices rise when economic activity improves. given this, when prospects for a sustainable improvement in economic activity are widely acknowledged in view of efforts to strengthen the foundations for economic growth and the spread of policy effects, people expect a rise in prices based on the relationship between economic activity and prices at a future point in time – in other words, inflation expectations will rise. meanwhile, in the corporate sector, better prospects for economic activity and sales will enable firms to ease price competition and pass higher costs on to selling prices. as a result, prices for the present period will likely incur upward pressure, thereby shifting the entire observed phillips curve upward, or making the curve steeper than before. in the actual formation of inflation expectations, aspects of both the backward - looking and forward - looking formations are considered to coexist. this is called hybrid - type expectation formation. based on past experiences, the aspect of backward - looking expectation formation is prominent in japan. on the

alan bollard : the recovery, the aftershock and the economic future speech by mr alan bollard, governor of the reserve bank of new zealand, at the deloitte tax conference, auckland, 19 november 2010. * * * the crisis the global financial crisis has been the major economic event of our time. as we continue through the recovery phase and encounter unexpected aftershocks it is timely to reconsider what this means for new zealand. the global financial crisis was not as harmful as the 1930s depression, but from that event we learnt that recovery to economic normality can be a slow, fragile, uncertain process with temporary set - backs and aftershocks. the 2008 global financial crisis has been different from the 1930s : it was widespread and internationally synchronised, it hit deep, but not long. it originated from the banking sector, spread virally across a number of sectors, hit the housing sector particularly hard, and was ultimately arrested by active government stimulus. the global financial crisis finally troughed in mid - 2009 in an internationally - synchronised way. there was general relief as the macroeconomic data became more reassuring, and the very large contractions in economic activity ceased. at that stage our focus turned to what the recovery would look like. the history of major financial crises shows a consistent pattern emerges : a long period of building up stresses ( averaging a decade ), a rapid unwinding, then an equally long period of gradual recovery 1. carmen m. reinhart & reinhart, vincent r. ( 2010 ) “ after the fall ”, jackson hole symposium. following regular post - war business downturns that were not associated with financial and banking crises, economies have traditionally recovered speedily and strongly. not this time in the west. instead we have seen businesses very cautious about reinvestment, with scarcely any credit growth. in the us, households have been traumatised by the twin fear of losing their jobs and their houses. we have observed two particular aftershocks to the crisis, neither of which was expected, as countries struggle to rebalance in two distinct ways. external rebalancing we are seeing an external “ aftershock ” playing out across the globe right at the moment with big movements in exchange rates to cross - rate extremes not seen for decades. the need to rebalance externally has been driven by the record build - up of international imbalances that created the pre - conditions for the global financial crisis.