in the period from 2007 to 2009, the chinese economy, which was approaching the time it would experience a structural slowing anyway, decelerated abruptly, as did many other economies. the chinese authorities responded with a very large stimulus that brought the boom back bigger than ever. this helped global growth recover in 2010 after its 2009 performance, which was the weakest since world war ii. this in turn saw australia's terms of trade rise to the highest sustained level for more than a century. at the peak they were more than 80 per cent above the average level for the preceding hundred years. of course, nothing is forever and the terms of trade have been falling for about five years now, and are down from the peak by about a third ( though they are still about 20 per cent above that very long - run average ). overall, then, the past decade has been a much more volatile time, from the external point of view, than either of the two preceding decades. this is easily demonstrated with some simple metrics for the growth and variability of the world economy, and australia's terms of trade. the tables show data for four decade - long periods. global growth has been lower than it was in the “ great stability ” period, led by much weaker outcomes for the major advanced countries. those outcomes were in substantial part a legacy of the financial crisis, of course, though other longer - run factors may also have been at work. global growth would have been weaker still were it not for two factors : emerging market economies as a group did not slow on average ; and in addition, their weight in the global economy increased significantly. this change in weights alone added about one - third of a percentage point to the imf's measure of global growth in gdp in the latest period. [ 4 ] the world economy has also been much more variable – even more variable than in the late 1970s / early 1980s, a period not fondly remembered by economic policymakers. inflation among the advanced economies was lower on average, but noticeably more variable. [ 5 ] as noted above, australia's terms of trade rose quite a bit in the period of the great stability, then rose even further, and became much more variable, over the past decade. bis central bankers ’ speeches table 1 : selected indicators ( a ) world gdp growth g7 gdp growth advanced economies inflation australia's terms of trade index ; 1976 – 1986 = 100 annual standard annual standard annual standard standard average average deviation average deviation

left idle. this is usually referred to as providing the economy with a nominal anchor. when households and enterprises can base their economic decisions on low and stable inflation, this provides an important foundation for higher activity and welfare over time. as long as there is confidence that inflation will remain low and stable, monetary policy can contribute to smoothing fluctuations in output and employment. when the economy is exposed to shocks, such as a financial crisis or a fall in oil prices, monetary policy can respond rapidly. sufficiently flexible inflation targeting could help ensure that lower employment levels do not persist over the long term following a downturn. this can reduce the risk of unemployment becoming entrenched at a high level. the probability of a pronounced downturn in the economy has been shown to increase after periods of rapid asset price inflation and debt growth. monetary policy can also to some extent contribute to high and stable output and employment by giving weight to counteracting the buildup of financial imbalances. however, monetary policy must not be overburdened. if norges bank pursues objectives it does not have the instruments to fulfil, confidence in monetary policy may be eroded. the regulation and supervision of financial institutions must be the primary means of addressing shocks to the financial system. employment levels over time are determined by structural conditions, such as the functioning of the labour market, the tax and social security system and the wage formation process. in norway, a well - functioning wage formation process has enabled unemployment to remain low while wage growth has remained moderate. the new regulation underpins norges bank ’ s flexible approach to inflation targeting. in the conduct of monetary policy, substantial weight will continue to be given to the real economy. in this context, whether the inflation target is 2. 5 percent or 2 percent is less important. at 2 percent, the inflation target is now at the same level as that of most of norway ’ s trading partners. the reduction of the target will not in itself significantly affect the short - term interest rate outlook. never before have global interest rates been as low for such a long period. growth abroad has now picked up, and there are prospects of a gradual interest rate increase among norway ’ s 3 / 4 bis central bankers'speeches trading partners. the outlook is also brighter in norway. in the two years since the cyclical trough was reached, growth has gained a firm footing and the unemployment rate has declined. the outlook suggests that it will soon be appropriate to raise the key policy rate – and