is undershooting its price stability objective and is expected to continue to do so. but we should all keep in mind that this outcome – and especially the forecast for continued undershooting – typically means that the fomc is also underperforming on its other objective of promoting maximum employment. bis central bankers ’ speeches should the fomc make up for past inflation misses? i ’ ve described how i expect that the pce inflation rate will run below the fomc ’ s 2 percent target for several years – possibly until 2018. let ’ s assume that forecast turns out to be right. this outcome raises a key policy question : how should the fomc ’ s inflation goals in the years following 2018 be influenced by the undershooting of the inflation target in the preceding years? in addressing this question, i ’ ll compare two possible approaches : the standard approach of inflation targeting and the more novel approach of price level targeting. let me note before i begin that i won ’ t take a stand today on which of those approaches is better. my goal is simply to initiate a policy conversation about future – indeed, possibly far - off future – monetary policy choices. the fomc announced its 2 percent inflation target in january 2012. since that date, inflation has averaged about 1. 4 percent per year. as i noted earlier, i anticipate that inflation will rise only slowly. as you know, the inflation rate is the growth rate of the price level – that is, how much people pay for a typical bundle of goods and services. hence, the downside misses with respect to inflation cumulate into a significantly lower price level. if my inflation forecast is right, the price level in 2018 will be about 2. 2 percent below what it would have been had the fomc hit its inflation target over the preceding six years. how should the fomc respond to this shortfall in the price level? if the fomc simply targets a 2 percent inflation rate after 2018, then the price level will be permanently 2. 2 percent lower than was expected in 2012. this approach to policy – which is the standard one followed by most leading central banks around the world – is called inflation targeting. but there is an alternative : the fomc could target a slightly higher inflation rate for a few years after 2018 in order to make up for the shortfall in the price level. this latter policy approach is often termed price level targeting. bis central bankers ’ speeches

ric battellino : australia ’ s foreign trade and investment relationships remarks by mr ric battellino, deputy governor of the reserve bank of australia, to the 3rd annual australian parliamentary conference, perth, 6 november 2009. * * * thank you for the invitation to take part in this panel discussion. given the international focus of this session, i thought i would make some observations about the changes taking place in australia ’ s trade and investment relationships with other countries and what they mean for the domestic economy. 1. facts on international trade let me start with some facts on international trade. after a period of relative stability in the 1980s and early 1990s, australia ’ s trade relationships have changed significantly in the past decade. this has been driven by the rise of china and, more recently, india. • china has now become australia ’ s largest export market, taking almost one quarter of our exports ; 10 years ago, less than 5 per cent of our exports went to china ; • india has gone from being a relatively insignificant export market 10 years ago to taking 7 per cent of our exports now. interestingly, the rise in the share of exports going to china and india has not come at the expense of our other large markets in asia – japan and korea. rather, the offsetting decline has been in exports to the united states, new zealand, south america and africa. the result is that the share of our exports going to the asian region, which was already high, has risen further, to around 70 per cent. many people have noted that, with china and india still at early phases of their economic development, it is likely that they will continue to grow strongly for many years yet, and so will their demand for resources. it is hard to argue with that conclusion, though we should keep in mind that, like all countries, china and india will experience economic cycles around this trend. in the case of our imports, china has also increased its share sharply over the past decade, from 6 per cent to 17 per cent. while europe as a whole, and the countries of south east asia as a group, have larger shares, china is the single largest individual country supplying goods to australia. china ’ s growing share of australian imports in recent years has mainly been at the expense of the united states and japan, though part of this change in shares has been due to united states and japanese companies relocating some manufacturing plants to china. in short, over the past decade there has been a very significant ref