be subject to the risks that historical relationships no longer apply, or that productivity ( which is not directly observable ) is just plain mismeasured for a period. a measure of trend constructed in this way is okay to use as cross - check, but i wouldn't want to rely on that as my only guide. the labour market is, by contrast, a source of pragmatic and accessible signals of where growth is relative to trend. if employment is growing faster than the working - age population, and the unemployment rate is coming down, those are pretty good signs that the economy is running faster than ‘ trend ’. it can take a while for spare capacity to be absorbed. therefore policy settings might need to be expansionary for a number of years. so it is natural to want to ask whether extended periods of expansionary monetary policy might lead to unintended consequences. the consequences for asset https : / / www. rba. gov. au / speeches / 2018 / sp - ag - 2018 - 10 - 11. html 2 / 6 10 / 11 / 2018 supporting growth in the short run and the long run | speeches | rba prices and financial stability have been dealt with at length elsewhere, including in the stability review as i have already mentioned. financial another aspect of expansionary policy that has raised concerns in some quarters is the distributional effect. other central banks have looked into this ( for example see, ampudia et al ( 2018 ), bunn, pugh and yeates ( 2018 ) and colciago, samarina and de haan ( 2018 ) ). that is understandable, because they had set interest rates at much lower levels than seen in australia, and in some cases also expanded their balance sheets with asset purchases. the findings of that research is that the first - order effect of expansionary monetary policy is to put more people in jobs who wouldn't have had one otherwise. this tends to benefit households at the lower end of the income distribution more than those whose incomes are already high. for wealth, there are a number of effects that offset one another, so the net effect on summary measures of the wealth distribution tend to be small. while lower interest rates and asset purchases do tend to support asset prices, and higher equity prices tend to benefit higher - wealth households, higher housing prices tend to have the largest effect on households in the middle of the wealth distribution. the effect of asset price increases are also greatest for people with

inflation either does not depart too far from target, or returns to target in cases where it has already moved. that is how an inflation target works, and it would do so even if the reserve bank's legislated mandate was expressed solely in terms of price stability. but the mandate in our act also encompasses full employment and the welfare of the australian people. these things are not in conflict with an inflation target. rather, they inform how that inflation - targeting regime operates day - to - day. they are relevant to the choices made about how quickly to return to target. the role of an inflation - targeting regime for monetary policy in supporting growth can be well illustrated by events in the australian economy over the past decade or so. during the build phase of the mining investment boom, there was a great call on australia's production capacity to get all the new mines built. this meant that, unlike many other countries, australia reached a point of having little spare capacity quite soon after the global financial crisis peaked. so there was a period where it was appropriate to set the cash rate a bit higher than the levels reached in the immediate aftermath of the crisis. since the peak of the mining boom, though, it has been appropriate to cushion the drag on growth as the terms of trade and mining investment declined. that is one of the reasons why monetary policy has been set to support growth in recent years. we expect mining investment to bottom out in coming quarters, as the last of the large lng expansion projects completes. after that, it will probably increase a little, as resource firms invest to maintain their production capacity at current levels. the scale of that ‘ sustaining investment ’ is nothing like that of the boom of the past decade or so. but the important point is that mining investment will no longer be dragging on growth. while there is spare capacity remaining, it is important for policy to support above - trend growth and work that spare capacity down. this raises the question of what trend might be and how we would know. just waiting until you see wages growth or inflation pick up would leave policymakers in the dark about how quickly they are moving towards their goals, or even if they are doing so at all. instead people use a range of different rules of thumb to assess how growth is tracking relative to trend, or ‘ potential growth ’. some of these are trickier to use in practice than others. for example, some estimates hinge on an estimate of feasible productivity growth. but these will