currency depreciations in the late 1990s. given brazil's history of hyperinflation, this stability is especially remarkable. brazil did experience an uptick of inflation around its presidential election in 2002, but even this was minor by historical standards. this pattern of reduced inflation is seen across many countries, large and small, developed and developing. the data thus clearly show that better inflation performance in the last decade is a worldwide phenomenon. but is this lower inflation regime likely to persist? one way to approach this issue is to investigate whether market participants appear to believe that this change is temporary or likely to last by examining measures of expected inflation. in the united states, where surveys go back furthest, long - term inflation expectations were as high as 8 percent in the early 1980s ; they dropped to about 3 percent a decade ago and have since edged down a bit more, to about 2 - 1 / 2 percent, depending on your favorite measure of expectation. 5 over the past ten years, other advanced economies and a few emerging markets such as korea have had a broadly similar experience. 6 in brazil and mexico, for example, long - term inflation expectations have declined from a range of 7 percent to 10 percent a decade ago to a fairly steady 3 percent to 4 percent in recent years. considering the high rates of inflation that these economies experienced not long ago, the low level and stability of long - term inflation expectations in recent years is remarkable. indeed, few long - term inflation forecasts in any country currently exceed 5 percent, although venezuela provides one counterexample, with a long - term inflation forecast now of 15 percent. overall, these surveys suggest that market participants do expect low inflation to persist around the globe. in addition, the risks of high inflation appear to have decreased as well. in particular, the volatility of inflation has declined notably almost everywhere. the standard deviation of inflation in the united states declined from as much as 4 percent in the early 1980s to around 1 percent a decade ago and has remained close to that level since then. 7 other advanced economies have had a similar experience. the decline in volatility is even sharper for the emerging markets. in the early to mid 1990s, the standard deviation of inflation in brazil at times exceeded 100 percent and in mexico it exceeded 30 percent. in the current decade, however, the standard deviation of brazilian inflation has been relatively stable at around 5 percent, while the standard deviation of inflation in mexico has declined steadily to around 2

of forward rates for most of these countries is difficult due to the relative sparseness of the maturity distribution, but for those countries in which five - year forward rates can be computed, they have been declining and have reached very low levels in the past year or so. overall, the combination of lower and less volatile inflation around the world has led to a reduction in inflation expectations and lower perceived inflation risk, and hence to a lower premium in long rates for inflation uncertainty. i believe that these factors have been important contributors to the lower longterm yields and the flattening of yield curves, particularly in emerging markets. the establishment of markets for long - term nominal government and corporate debt in countries in which they did not exist a decade ago is powerful evidence of the faith that investors place in a future environment of price stability. broader economic benefits the economic benefits of price stability are too numerous and well known for me to cover here in detail. long - run price stability certainly is essential for achieving maximum employment. however, i would like to underscore some benefits that are often overlooked, related to the development of markets for long - term bonds. price stability boosts growth by deepening financial markets. given stable prices, savers and investors have more confidence about the ultimate value of their investments. stable prices encourage the growth of financial intermediaries and financial markets. as i have discussed, many emerging markets have recently experienced a deepening of their local financial markets through a greater issuance of longer - dated paper. there is a strong positive link between banking and financial market development and economic growth, and a number of studies have concluded that banking and financial market development is a key driver of economic growth. thus, greater central bank credibility, which permits more development of local financial markets, can have an economic benefit beyond the financial sector. 18 the development of long - term local - currency bond markets may also help to enable governments and firms to plan long - term infrastructure and investment projects that boost economic development. although such debt markets are only one of many factors that can help to lower the costs of long - term planning and enhance the ability to undertake long - term investments, such developments can improve decisionmaking. in particular, investment decisions are less likely to be constrained by having only i have included floating - rate debt in the one - year maturity category. see ross levine ( 2005 ), " finance and growth : theory and evidence, " philippe aghion and steven durlauf, eds., handbook