caleb m fundanga : promoting financial inclusiveness opening remarks by dr caleb m fundanga, governor of the bank of zambia, to the second afraca central banks ’ forum, livingstone, 23 - 25 september 2008. * • • • • • • • • • • • • • * * the guest of honour ; honourable ng ’ andu p. magande, mp minister of finance and national planning ; your worship the mayor, mrs grace shafik ; provincial minister, hon daniel munkombwe ; permanent secretary, southern province, mr darius hakayobe ; deputy governor - operations, dr denny kalyalya ; chairperson ; the secretary general of the african rural and agricultural credit association ( afraca ), mrs mary nandazi ; co - operating partners ; distinguished invited guests from central banks ; resource persons ; chief executive officers of banks and non bank financial institutions ; distinguished invited guests ; ladies and gentlemen ; on behalf of the bank of zambia and indeed on my own behalf, i would like to extend a very warm welcome to you all to this important african rural and agricultural credit association ( afraca ) conference. to our colleagues from outside zambia, i wish to extend a special welcome to you to zambia, in particular to livingstone, our tourist capital. like the rest of zambia, livingstone is a city of tranquility with an easy - going african charm. the city is not short of interesting sites and places to visit. it hosts the victoria falls, also known among the locals as “ mosi - o - tunya, the smoke that thunders ” and is one of the world ’ s seven natural wonders! there is also a game park, a well stocked curio market and the mukuni cultural village, among the many attractions. i therefore urge you to find time or indeed stay an extra day or more to sample this special menu that livingstone has to offer. chairperson, central bank of zambia is honoured and delighted to co - host the second afraca forum that begins today, the 23rd and ends on 25th september, 2008. afraca is an association of central banks and financial institutions involved in the provision of financial services to the rural population in africa and increasing access to financial services in general. its membership of 94 institutions consists of central banks, commercial banks, agricultural banks, development and cooperative banks, other financial institutions and microfinance operators whose networks spread throughout 26 african countries. it is through workshops and fora of this nature

the federal open market committee ( fomc ) as a consumer of model - based forecasts and analysis suggests that work remains to be done on both fronts - - and, in particular, on meeting both objectives with the same model. as regards the first property, the conceptual - - albeit informal - - framework that many policymakers like to use is largely " bottom up " and features costs and expectations. it starts with wages and the prices of other inputs into production, and after taking into account productivity, it sees prices set as a markup over unit costs. wage determination plays a key role in this framework and is influenced by such factors as inflation expectations, productivity, the views i express here are my own and not necessarily those of other members of the federal open market committee. flint brayton and david reifschneider, of the board's staff, contributed to these remarks. 1 / 4 and labor market slack ; the markup, too, is important because it varies over time depending on changes in the competitive environment, expected future costs, and other factors. at first glance, the empirical structural models currently favored in academic research and discussed at this conference - - such as the new keynesian phillips curve - - appear to conform to the informal policymaker model : expectations formation is dealt with formally, and price inflation, at least in some empirical representations, is directly tied to measures of unit labor costs. on closer inspection, however, one sees that the specifications of these models typically ignore important factors bearing on the inflation outlook. one category of neglected factors is price shocks - - changes in the levels of key inputs, such as energy or imports. policymakers spend a great deal of time discussing the circumstances under which such shocks can lead to persistent changes in the rate of inflation. yet, despite their historical importance for aggregate inflation, energy prices, for example, are controlled for in only one of the structural models discussed at this conference. and this importance is not necessarily a concern of the past : prices for oil and natural gas have soared since 2003, directly boosting the energy component of the consumer price index as well as raising the production costs, and ultimately to at least some degree the prices, of non - energy goods and services. as a policymaker, i can assure you that any model of inflation that did not take account of these effects, and how they might or might not affect ongoing rates of inflation, would have been of little practical use to the fomc over the past