##s are published, there may also be a comment, phrased in general terms, on how the bank views market expectations. so far, only a few central banks have taken the step of publishing their own forecasts for their policy rates. arguments for and against own forecasts for the repo rate there are currently discussions, both in academic research and in central bank circles, as to whether it is appropriate for central banks to publish their own forecasts for the policy rate. in a moment, i shall describe some advantages and disadvantages of such an approach. at the same time, one must remember that there are a number of advantages and disadvantages to all of the approaches i mentioned earlier, and these must be weighed against one another. when we changed over from keeping the repo rate constant in our forecasting work to basing the forecasts on market expectations, we had made the assessment that the advantages of this system outweighed the disadvantages, compared with using a constant repo rate assumption. the assumption of a constant repo rate worked well in as far as it made communication simple, which i believe was particularly important when establishing the new monetary policy regime and building up credibility for the inflation target. at the same time, it was of course usually an unrealistic assumption that made it difficult for us to make good forecasts. this applied in particular in cases where there were expectations of substantial repo rate adjustments. normally, changes in the repo rate are required to guide inflation towards the target. if we had kept to this assumption for the interest rate, these difficulties would have been particularly prominent when we changed over to making forecasts in a slightly longer time perspective. of course, the assumption of a constant repo rate also made it difficult to compare our forecasts with those of other forecasters and to evaluate our monetary policy. but, perhaps even more importantly, it gave no clear guidance as to how we viewed interest rate developments in the long term. the general public ’ s and the markets ’ expectations of the future interest path are at least as important for the way monetary policy influences the economy as the expectations around the decision on the current interest rate. we left most of these problems behind us when we began making forecasts based on market expectations, as reflected in the so - called implied forward rates. this was because market expectations in most cases provide a much more realistic forecast for the future development of the repo rate. the changeover from a constant repo rate to

the - envelope calculation. the export sector is about one - fifth of the economy. the terms of trade are at present about 60 per cent higher than their average level for the 20th century, and about 80 per cent higher than the outcome would have been had they been on the 100 - year trend line. this means that about 12 – 15 per cent of gdp in additional income is available to this country ’ s producers and / or consumers, each year, compared with what would have occurred under the average or trend set of relative prices over the preceding 100 years ( all other things equal ). that will continue each year, while the terms of trade remain at this level. of course, part of this income accrues to those foreign investors who own substantial stakes in the mineral sector. in this sense, the current boom is a little different from the early - 1950s one where most of the income went first to australian farmers. nonetheless, a good proportion accrues to local shareholders and employees, and to governments via various taxes. a non - trivial part of it is available to consumers as higher purchasing power over imports, as a result of the high exchange rate. it does not take much imagination to see that an event of this magnitude is expansionary. incomes are higher – in some cases a lot higher – and, absent some offsetting force, some of that will be spent. so it has always proved in the past. moreover, if, as seems very likely, these prices prompt a build - up in investment to supply more of the commodities concerned, there are further expansionary effects. even applying significant discounts to stated investment intentions, as the reserve bank staff have done in their forecasts, there is likely to be a further significant rise in business investment over the next few years, from a level that is already reasonably high as a share of gdp. on all the indications available, we are living through an event that occurs maybe once or twice in a century. so a very important question for us is : how do we handle all this? we obviously have to be wary of overheating. the bank has given its views on this point before and i will say no more about that tonight. in fact, fitting a trend to the data for the 20th century shows a statistically significant downward trend of about 0. 2 per cent per annum on average. prebisch ( 1950 ) and singer ( 1950 ). but in fact the issues are broader than that. they extend to how