by inflation. as inflation rises, one is able to purchase fewer goods for a given number of rands. therefore, we aim to protect the purchasing power of the currency by attempting to keep inflation low. we have an inflation target range of 3 – 6 per cent, which informs our policymaking. the reserve bank is bis central bankers ’ speeches also responsible for regulating parts of the financial sector. regulation of this nature helps to reduce the risk of financial crises, which over the long run is likely to result in improved economic performance. furthermore, financial regulation can promote fairness as financial sector stress tends to weigh disproportionately on the most vulnerable in our society. while protecting the value of the currency is, of itself, an important objective, it also serves a greater overarching purpose : that of providing a stable foundation for sustained economic growth. this is because most economic activity takes place on the basis of trust in the value of a currency, not just today, but also in the future. people are far more likely to save for the future if they are confident that the purchasing power of their savings will at least be maintained over time. similarly, companies are more likely to enter into long - term contracts with each other if they are confident that inflation will not materially reduce the value of the contract once the job is completed. by providing stakeholders with a credible inflation target range and a commitment to maintain inflation within that target range, we are making the business environment more predictable and ultimately more efficient over the long run. this is an indirect benefit of a sound monetary policy framework. to put it differently, a large body of literature shows that monetary policy can directly affect economic growth and employment only in the short run. for example, if the reserve bank maintains an interest rate that is artificially low, we may be able to temporarily boost gdp growth and employment. however, this will come at the cost of rising inflation and significant uncertainty about future inflation outcomes. over time, this uncertainty may result in inflation expectations rising, which can lead to an inflation spiral as wage demands and price increases continuously rise to match future inflation expectations. the cost of bringing inflation back into the target range once inflation expectations have become dislodged is high. it would require aggressive policy action in a short space of time. as such, the temporary benefits associated with an overly accommodative monetary policy would be quickly eroded and replaced by a more difficult and uncertain operating environment for business and consumers. it would, therefore

themes that we are seeing at the national level are playing out right across the country, although to differing degrees. we are now all moving in the same direction. the structural perspective i would now like to turn to the structural perspective. the main point is that, abstracting from the cyclical dynamics, there is a longer - run trend towards more similarity, rather than more divergence, in the underlying economic structure across the country. an important area where this can be seen is the labour market. over time, there has been a marked reduction in the dispersion of unemployment rates across the country ( graph 6 ). in particular, the standard deviation of the unemployment rate across the 87 individual regions for which the australian bureau of statistics ( abs ) publishes data is markedly lower than it was at the turn of the century. 6 / 16 bis central bankers'speeches it is also worth noting that the average unemployment rate outside the capital cities is lower than the average unemployment rate in the capital cities for the first time in a long while ( graph 7 ). the gap between the participation rates for prime - aged workers in the capital cities and outside the capitals has also narrowed. so there has been a convergence of sorts. 7 / 16 bis central bankers'speeches there are a number of possible explanations for this. one is that the labour market has become more flexible, including through the movement of people. another is that the economic shocks experienced have become less region specific. it is hard to be definitive, but both explanations are likely to have played some role. 1 the improved flexibility of the australian labour market is no doubt part of the story, and the willingness of people to move for jobs is part of this. however, the propensity of people to move interstate, or within their state, has declined over the period that the dispersion in unemployment rates has declined ( graph 8 ). for the two decades to the mid 2000s, around 2 per cent of us moved states each year. over recent times that share has fallen to 1½ per cent. 8 / 16 bis central bankers'speeches another important part of the story is overseas migration. this is evident in this next graph, which shows the contribution to employment growth from interstate migration, overseas migration and people already living within the state ( graph 9 ). 2 the role that overseas migration played in the adjustment process here in western australia is clear. when the boom was in full swing the workforce in western australia was boosted significantly by workers from overseas. and