on the recent experiences of the us, and not just because it is the world ’ s largest national economy in terms of production of goods and services. the us economy is also a dominant force affecting global capital markets, and in the past five years it has been subject to some unusual influences which are still running their course. there has been a remarkable degree of investment in information technology and communication capacity in the us. this has been a feature of other countries too, but it was most pronounced in the us, raising the share of overall business investment in gdp to historically high levels in the late 1990s. expectations about returns to this investment have, until quite recently at least, been very optimistic. for that reason, the us has been a powerful magnet for capital, and much of america ’ s additional investment has been funded with savings sourced in other countries. associated with that has been a rising level of the us dollar, high levels of domestic asset prices and hence substantial gains in household wealth. that, in turn, helped to support a prolonged period of strength in household consumption spending. all of this contributed to a robust and lengthy period of economic expansion until early 2001. it is striking, moreover, that this long expansion followed a pretty mild recession in the early 1990s, which had itself followed a pretty good expansion in the 1980s. so, in fact, the us has had a good two decades by the standards of other advanced economies, with its performance outstripping those of europe, or japan, with the margin quite wide during the 1990s. this persistent out - performance by the us economy has made it the benchmark for most things economic and financial. the dominance of the us model of market capitalism seemed, by the end of the 1990s, to be unassailable. the role of the financial sector in all this, moreover, was pivotal. us equity and debt markets channeled vast quantities of capital into the corporate sector, and especially the high - tech sector, at quite low cost. in 2000, equity market issuance by us corporates was eight times the rate just three years earlier, at price - earnings ratios which were exceptionally high. this rapid increase in the supply of almost costless equity capital seems to have been driven by the conviction that returns from some of the new technologies would be enormous for their producers and, dispersed across the us economy, their users in terms of productivity. the financial services sector provided the machinery for all this to happen, itself using the improvements in information and communications technology to

further over the course of 2017. the three major advanced economies are all growing above the rate of growth of productive capacity, also known as the potential growth rate. this is clear from the large and ongoing declines in the unemployment rate. the question is how much spare capacity remains in these economies. so far, inflation hasn't picked up much, and neither has wage growth. this might normally suggest that there is still some spare capacity. as this graph shows, estimates of the ‘ full employment ’ rate of unemployment – the rate of unemployment below which wage growth starts to pick up – in fact suggest that the united states and japan are already at that point, if not below it. so are some of the individual countries within the euro area ( graph 1 ). this full employment rate of unemployment, or non - accelerating - inflation rate of unemployment ( nairu ), is inherently unobservable, so it has to be estimated. it can be estimated a number of ways, and there is a deal of uncertainty around those estimates. often, they come from statistical models which treat every undershoot in the inflation ( or wage growth ) outcome as a sign that the nairu is actually lower than you previously thought. graph 1 it's therefore useful to think about the economics, and the behaviour, underlying the existence of a nairu. it implies that there will still be some people unemployed at the point that firms have to start bidding up wage offers in order to find suitable staff. this is not so surprising when you consider that the labour market isn't homogeneous. there are so many different occupations and types of firms, and these aren't evenly distributed across the economy. so we shouldn't expect labour shortages to appear everywhere at the same time. what happens instead is that they turn up in a few pockets of the labour market, then a few more, and gradually become more widespread as conditions tighten. how quickly this happens depends partly on where the strong demand for labour is concentrated, and how much of the labour force has the applicable skills to perform those roles. so you'd expect wage growth to pick up more – and the nairu to seem higher – if the labour market is highly segmented and workers can't easily shift to the areas of strong demand. more flexible labour markets will, all else being equal, have lower nairus. some of the unemployment underlying the nairu simply reflects people who are between jobs, but will find one soon. ( this is sometimes