weathered these shocks reasonably well. inflation remains low by historical standards, and within the mandate to keep future inflation between 1 to 3 percent, on average, over the medium term. but this relative stability should not be taken for granted. good policy today does not necessarily guarantee good policy tomorrow, particularly when there is considerable uncertainty when confronting new shocks. new shocks can often necessitate new ways of confronting a dynamic economic landscape. many of these new challenges and associated price pressures can be linked to the growing role of china and other emerging market economies. globalisation and the increased interconnectedness this entails also implies that shocks to inflation ( and economic growth ) can be more easily and rapidly transmitted from place to place. indeed, the on - going financial market turbulence that began last august is a timely reminder of both the interconnected world we live in, and how quickly events can unfold. what began as difficulties in the us housing sector and the associated securitisation of mortgage - backed financial products, has developed into a re - pricing of risk more generally, increased global financial market volatility and tighter credit conditions. since the december monetary policy statement there has been ongoing turbulence in international financial markets and a deterioration in the outlook for the united states and european economies. we will be watching these developments closely, particularly their implications for the asian and australian economies and for world commodity prices. at a structural level, financial globalisation also highlights the possible limits to conducting monetary policy in a small open economy such as ours – particularly when our business cycle is out of synch with the rest of the world. relatively low global interest rates over the past five years have impacted on the transmission mechanism of monetary policy, essentially acting to delay the effects of reserve bank policy changes on household and firm behaviour, and ultimately on inflation. both current and longer - term factors act to test the limits of our monetary policy framework on a regular basis. nevertheless, new zealand ’ s policy framework remains well within the norms of international central banking practice. although there are, as always, challenges facing the conduct of monetary policy as we move forward, we are well - placed to take them on. references fitch ratings ( 2007 ) “ house prices and household debt – where are the risks? ” special report, 29 july. imf ( 2007 ) world economic outlook, october. imf ( 2006 ) world economic outlook, october. imf ( 2006 ) world economic outlook, april. rbnz ( 2007 ) finance and expenditure select committee inquiry

the recovery and resolution of credit institutions and investment firms. the part involving the bnb was finalised at the end of last year and is due for submission to the national assembly with legal amendments likely to get adopted by the end of this quarter. the bnb governor also outlined the second work block in this direction, on which the bnb is currently working, i. e., the overall framework of determining the amount of funds to be contributed by banks to the single resolution fund and the amount and way of transferring funds from the bank resolution fund in bulgaria, which was set up in 2015, to the single resolution fund. the third work block covers the overall activity of planning and conducting resolution activities, including the distribution of responsibilities and tasks between the single resolution board and the bnb after our country joins the banking union. with regard to the expected effects on the economy and the business, the bnb governor highlighted that it was positive to reaffirm bulgaria ’ s strategic course, and that the process is already being filled with content and specific timeframe. the whole process stands as a positive counterbalance against the more general uncertainty from the global and european economic environment. 1 / 2 bis central bankers'speeches among the more direct positive effects from this first stage on the path to the euro area is the anticipated improvement of the country ’ s credit rating, as announced by the credit agencies, should the process run successfully in the short - term. that would improve the funding conditions in the country. at the same time, the effects of joining erm ii will not be tangible in regard to the macroeconomic policy and neither will our monetary regime change. the bnb governor made it clear that the only exit from the current regime would be the replacement of the lev with the euro at the currently fixed exchange rate. the whole process of accession – first to the banking union and erm ii, and next to the euro area – could not substitute for the good macroeconomic practices and business projects, mr. radev said. a country refusing to comply with this is sure to suffer serious economic and financial difficulties whether inside or outside the euro area. the two proven pillars of good macroeconomic policy in bulgaria are the fiscal stability and the monetary regime stability. should these conditions, together with the continuous improvement of institutions, be present, the preparatory process and subsequently the accession to the euro area would be a catalyst for the social and economic prosperity of our country. 2 / 2 bis central bankers'speeches