operate. this implies that actions by one authority have an impact on the variables underlying the policy objectives of the other. given these linkages and spillovers, it is crucial to have a clear institutional framework, which governs the interactions between monetary policy and fiscal policy. important in this context is the issue of the division of responsibilities. those taking macroeconomic action should be given clear mandates which they can fulfil and for which they can be held accountable. monetary policy - makers should be responsible for price stability and fiscal policy - makers should keep public finances sound with a view to providing the best contribution to enlarging the growth potential of the economy. such a clear separation of mandates avoids problems with regard to implementation and incentives that would otherwise be bound to occur if monetary and fiscal policies had constantly to be co - ordinated on an ad hoc or a discretionary basis. the euro area experience having elaborated on the need for a clear institutional framework, let me now turn specifically to the euro area, and discuss how these insights have found their way to the policy framework of the european union ( eu ). the introduction of the euro posed a unique challenge to devise principles reflecting the considerations i have just highlighted. as to the common monetary policy, the treaty establishing the european community unambiguously identifies price stability as the primary objective for the ecb, as this is the only objective monetary policy can be expected to deliver in the long run. the ecb and the national central banks of the eurosystem are granted independence in the pursuit of this objective, so that they are shielded from possible short - term political interference by governments. at the same time, fiscal policies remain the exclusive responsibility of national governments, although they are subject to eu - wide rules. the maastricht treaty states that countries should avoid excessive deficits. important reference values for this assessment are a government deficit level of 3 % of gdp and a debt - to - gdp ratio of 60 %. in addition, countries have committed themselves in the stability and growth pact to respect the medium - term objective of a budgetary position of “ close to balance or in surplus ”. attaining this position implies that automatic stabilisers can operate freely over the cycle without running the risk of exceeding the 3 % reference value. additional elements in the eu policy framework that have an impact on fiscal policies are the prohibition of any monetary financing of government deficits, which implies that governments cannot resort to central banks for the financing of their budgets, and

/ www. rba. gov. au / speeches / 2017 / sp - dg - 2017 - 11 - 13. html 8 / 13 13 / 11 / 2017 business investment in australia | speeches | rba graph 7 note that cost reduction does not necessarily imply lower investment. achieving greater automation or process efficiencies is quite likely to require some amount of capital spending. heightened uncertainty several studies suggest that heightened uncertainty has weighed on investment in a number of countries. [ 9 ] indeed, construction of measures of uncertainty has become something of a cottage industry. our own work has found some evidence of a negative relationship between uncertainty and investment but most measures of uncertainty for australia have been at relatively low levels in recent years. [ 10 ] that said, uncertainty is not observable, and different uncertainty measures may have different statistical relationships with investment. tighter financial conditions financing constraints have been found to play a role in explaining weak investment outcomes in a number of countries. [ 11 ] however, liaison with larger businesses suggests that the cost and availability of finance is generally not weighing on investment in australia. moreover, aggregate indicators of borrowing costs are at low levels. http : / / www. rba. gov. au / speeches / 2017 / sp - dg - 2017 - 11 - 13. html 9 / 13 13 / 11 / 2017 business investment in australia | speeches | rba however, aggregate indicators of the availability of finance and borrowing costs hide a great degree of heterogeneity ( graph 8 ). [ 12 ] while finance is readily available for large companies, either through the banking system or through capital markets, our liaison with smaller enterprises indicates that the availability of finance is a much more binding constraint. my colleague chris kent will talk about this in more detail next month. graph 8 changes in the composition of output another possible explanation is that non - mining investment is lower because the steady - state investment - to - gdp ratio is lower than in the past. ( the steady - state ratio is the ratio that the economy should converge to once all cyclical factors have dissipated. ) these arguments can broadly be split into two categories : a structural shift in the economy towards services ( and other less capitalintensive sectors ) ; and changes in other economic factors that determine the steady - state investment ratio. the main challenge for these theories is to explain why structural factors only emerged as important in restraining investment in the post - crisis period. if relatively less capital - intensive sectors become a larger share of