, the unemployment rate is the lowest in more than 30 years and in japan it is the lowest in around two decades. yet, in both countries, wage outcomes are subdued. more broadly, across a range of countries, wage increases have recently been slower than suggested by standard phillips curve relationships. this comes after a period in which the wage adjustments to very high unemployment rates were relatively small in a number of countries. time will tell if this simply reflects a change in the normal lags. but i suspect that there is something deeper going on. the experience of the financial crisis has left deep scars in many economies, including a heightened sense of job insecurity. this insecurity has been compounded by the increased competition that globalisation has brought as well as by changes in technology. it has led to many workers in advanced economies feeling less inclined to seek the wage increases that they might once have sought – they feel that they have less market power and that keeping a job is more important than seeking a large pay increase. a similar dynamic is probably playing out in the pricing decisions of many businesses. globalisation has brought new competition in many markets for goods and services and the bis central bankers ’ speeches financial crisis increased business uncertainty. in this environment, putting up prices can seem to be a more risky proposition than it did previously. it is difficult to tell how persistent any of these perceived changes in market power are likely to be. it still seems highly probable that a period of strong growth in the global economy would eventually see a generalised increase in pricing power. in the meantime, though, the inflation pressures in the global economy are quite muted. the recent fall in oil prices has reinforced this and has contributed to a decline in inflation expectations in a number of countries. in this environment, the limits of monetary policy are becoming more visible than perhaps they were in earlier years. high levels of debt and increased uncertainty look to have changed or, at least temporarily, altered the transmission mechanism. this is one of the reasons why the g20 and others have focused on the importance of structural reform and improving the climate for investment. at the global level, stronger and more effective policies in these areas would be helpful in encouraging both households and businesses to take advantage of the opportunities that low interest rates have provided. monetary policy can help support the global economy, but ultimately it cannot be the fundamental driver of economic growth. implications for australia so what does all this mean for australia? there are three general points that i would like to

make. the first is that global monetary developments are having a significant effect on the configuration of australian exchange rates and interest rates, and thus on our asset prices. the monetary stimulus abroad has tended to put downward pressure on the value of the currencies concerned. conversely, it has put upward pressure on the value of other currencies where the need for monetary stimulus has been less, including the australian dollar. while movements in the value of our own currency remain heavily influenced by changes in commodity prices, the upward pressure on the australian dollar from developments abroad has complicated the transition of the economy following the mining investment boom. with our exchange rate higher than it otherwise would have been, domestic demand has been a bit weaker. the reserve bank board has responded to a softer economic outlook by having interest rates lower than otherwise. the easier monetary policy in australia has supported the domestic economy. it has done this partly by offsetting some of the upward pressure on our currency from developments abroad, although the scale of global monetary stimulus means that our exchange rate remains relatively high given the state of our overall economy. the end result here is that global developments have left us with a higher exchange rate and lower interest rates than would otherwise have been the case. we may not like this configuration, but developments abroad give us little choice. the lower interest rates have boosted domestic asset prices, with both property and equity prices recording strong gains recently ( graph 8 ). the low interest rates globally have also worked to push up australian asset prices. overseas investors, faced with very low returns, have looked elsewhere around the world for higher - yielding assets. some of these assets are in australia and so we have seen significant inflows into some types of investment. one example of this is commercial property, where foreign investors have been attracted by the historically high yields. the higher asset prices are helping to support the economy, although they need to be watched carefully, particularly where they are accompanied by higher borrowing. bis central bankers ’ speeches the second general point that i would like to make is that the same factors that are affecting the transmission of monetary policy globally are also evident in australia, although to a lesser extent. in common with households in a number of other countries, australian households increased their borrowing over the decade or so to the mid 2000s as they adjusted to lower nominal interest rates and greater access to finance. during this period, the saving rate fell and indebtedness increased ( graph 9 ). but this adjustment is now complete. over recent years