recognising that post - crisis structural reforms have lowered natural rates of unemployment, by broadening measures of labour market slack to include involuntary underemployment, and by acknowledging that weak wages are one consequence of sustained poor productivity growth. more broadly, the recent high correlations of headline inflation rates have been driven by very large global shocks including the financial crisis and the commodity super cycle. core inflation rates have actually exhibited little co - movement but rather have varied with ( divergent ) underlying economic conditions ( chart 3b ). 785 - 823. consistent with this, analysis by bank staff found that uk businesses with weaker balance sheets increased their margins by more at the height of the crisis than those with healthier balance sheets. for example, as documented by the bank for international settlements ( bis ) in their 87th annual report, 2017. see also draghi, m ( 2017 ), ‘ accompanying the economic recovery ’, introductory speech at the ecb forum on central banking 2017 and danninger, s ( 2016 ) ‘ what ’ s up with u. s. wage growth and job mobility ’, imf working paper 16 / 122. for example, as suggested by claude borio, ‘ how much do we really know about inflation? ’, presentation on the bis 87 th annual report, 25 june 2017. see, for example, the boxes on pages 18 - 20 of the february 2017 inflation report and page 29 of the may 2014 inflation report. the solutions to these puzzles are also likely to involve some factors unrelated to globalisation. for example, one explanation put forward for missing dis - inflation is that companies facing liquidity constraints maintained prices at higher levels than they would otherwise have done in order to preserve cash flows and remain in operation ( see gilchrist, s, schoenle, r, sim, j and zakrajsek, e ( 2017 ), ibid ). consistent with this, analysis by bank staff found that uk businesses with weaker balance sheets increased their margins by more at the height of the crisis than those with healthier balance sheets ). all speeches are available online at www. bankofengland. co. uk / speeches chart 3b : core inflation rates exhibited little co - movement post - crisis see notes and sources to chart 3a. central banks have ( thus far ) been able to maintain their monetary sovereignty, achieving their mandates by offsetting the secular disinflationary forces from global integration. none of this,

decrease the responsiveness of inflation to domestic slack, flattening the phillips curve slope ( 3 ). monetary policy must take all these effects into account and, on balance, run the domestic economy with tighter spare capacity in order to accommodate them. iii. global influences on the stance of monetary policy just as global factors affect the relationship between domestic slack and inflation, they influence the monetary policy setting needed to achieve the inflation target. in particular, global integration affects the transmission mechanism of domestic monetary policy, the degree of spillovers from foreign monetary policies, and the equilibrium rate of interest itself. if and when global integration stops progressing, this shift down in the phillips curve would reverse. all speeches are available online at www. bankofengland. co. uk / speeches for the past thirty years, a number of profound forces in the world economy has pushed down on the level of world real interest rates by as much as 450 basis points ( charts 7 and 8 ). these forces include the lower relative price of capital ( in part as a consequence of the de - materialising of investment ), higher costs of financial intermediation ( due to financial reforms ), lower public investment and greater private deleveraging. two other factors – demographics and the distribution of income – merit particular attention. chart 7 : global long run real interest rates have fallen over the past 30 years source : rachel, l and smith, t ( 2015 ), ibid. rachel, l and smith, t ( 2015 ), ‘ secular drivers of the global real interest rate ’, bank of england working paper no. 571. it is sometimes claimed that the equilibrium real rate depends on the ( expected ) rate of growth, but this is an oversimplification. the entire distribution of growth rates matters : not only the mean, but also the volatility, asymmetry and fatness of the tails. see ‘ real interest rates and risk ’, speech by gertjan vlieghe at the society of business economists ’ annual conference, 15 september 2017. for a discussion of the wider implications of these forces, see ‘ debt, demographics and the distribution of income : new challenges for monetary policy ’, speech given by gertjan vlieghe at the london school of economics, 18 january 2016. all speeches are available online at www. bankofengland. co. uk / speeches chart 8 : secular drivers pushing down long - run equilibrium real interest rate bank research estimates that the increased retirement