, the review of economics and statistics, 92 : 524 – 535. measures of global economic slack are good predictors of national inflation in advanced countries, as shown empirically e. g. by c. borio and a. filardo ( 2007 ), “ globalisation and inflation : new cross - country evidence on the global determinants of domestic inflation ” bis wp no. 227 ; and in new keynesian open economy models e. g. by r. clarida, j. gali, and m. gertler, ( 2002 ) “ a simple framework for international monetary policy analysis, ” journal of monetary economics 49 : 879 – 904. imf estimates. see ecb ( 2015 ), “ the impact of oil prices on euro area inflation ”, box 3, annual report 2014. bis central bankers ’ speeches inflation, but also into lower underlying inflation through its effect on costs and imported prices. indeed, if one decomposes inflation for the average advanced economy, one finds that since mid - 2014 there has been a notable rise in the global component, linked largely to oil and commodity price falls. 4 these various factors may originate only in parts of the global economy – some originate more in advanced economies, other more in emerging markets – but in an integrated world they have global effects. cyclical weakness has spilled over through various channels into a similar challenge for all. the second type of factors is more structural in nature. they concern the global forces that have led to very low real equilibrium interest rates across advanced economies, and hence made it more complicated for monetary policy everywhere to provide the appropriate boost to global demand given an effective lower bound on nominal interest rates. in particular, this has led many central banks in the advanced economies to engage in large - scale unconventional policies. that low interest rate environment is a consequence of a global excess of desired saving over planned investment, which results from rising net savings as populations plan for retirement ; from increased demand for and lower supply of safe assets ; from relatively less public capital expenditure in a context of slowing population growth in advanced economies ; from the secular shift from industries intensive in physical capital to those more intensive in human capital ; and from a slowdown in productivity growth that reduces returns on investment. 5 again, those factors may not be distributed homogenously across economies, but their effects are global because they propagate through global financial markets. with internationally mobile capital, the clearing interest rate that balances saving

mario draghi : the international dimension of monetary policy introductory speech by mr mario draghi, president of the european central bank, at the ecb forum on central banking, sintra, 28 june 2016. * * * in recent years central banks across advanced economies have been engaged in the same task, namely raising inflation and inflation expectations back to levels consistent with price stability. each has faced conditions particular to its own jurisdiction. each has deployed measures appropriate to its own context. and each has acted to fulfil the mandate laid down in its own constitution. and yet, the fact that all central banks have faced a common challenge of low inflation is not coincidental. there are global factors at play. and this begs the question, what is the best way for us to deal with them? at one extreme, central banks can take global conditions as entirely exogenous and set their policies accordingly. at the other extreme is explicit coordination of monetary policies. in between is a range of informal solutions. whatever one ’ s views on these options, what is clear is that the question of the international dimension of monetary policy is becoming more pertinent, since the common factors affecting central banks are increasing. the global drivers of inflation indeed, a growing literature suggests that globalisation has created a common factor in inflation developments, which goes beyond fluctuations in energy or commodity prices. higher import volumes have increased the importance of international prices and wages relative to domestic ones, making the global output gap more relevant. 1 in that context there are two types of factors that are significant for the global low inflation environment we face today : more cyclical factors that have put downward pressure on prices ; and more structural factors that have lowered the equilibrium real rate and slowed down the response of the economy to monetary policy. the first type of factors includes the large negative output gaps generated by the financial crisis and its aftermath, which still average 1 % among g7 economies today. 2 this global slack has dampened in particular import and producer price inflation, both of which have been weak for several years among advanced economies. prices set by producers in the euro area and those set by producers in trading partner countries are indeed highly correlated. 3 also depressing global inflation has been the slump in demand for energy and commodities linked to the slowdown in emerging markets. this has fed not just into lower headline inflation as a global phenomenon has been documented e. g. by m. ciccarelli and b. mojon ( 2010 ), “ global inflation ”