disruptions, in bishop j and e greenland ( 2021 ), ‘ is the phillips curve still a curve? evidence from the regions ’, rba research discussion paper no 2001 – 09. see treasury ( 2023 ), ‘ working future : the australian government ’ s white paper on jobs and opportunities ’, final report, september. for further discussion, see ellis l ( 2019 ), ‘ watching the invisibles ’, speech at the 2019 freebairn lecture in public policy, university of melbourne, 12 june ; rba ( 2023 ), ‘ the non - accelerating inflation rate of unemployment ( nairu ) ’, explainer. while it is clearer that inflation and national incomes are complements in the long run, there is growing evidence that the longrun level of employment is also influenced by the credibility of the inflation target and the ability of policymakers to avoid recessions ; see blanchard o ( 2018 ), ‘ should we reject the natural rate hypothesis ’, journal of economic perspectives, 32 ( 1 ), pp 97 – 120. basel committee on the global financial system ( 2018 ), ‘ financial stability implications of a prolonged period of low interest rates ’, cgfs paper no 61 ; borio c and p lowe ( 2005 ), ‘ asset prices, financial and monetary stability : exploring the nexus ’, bis working paper no 114. board of governors of the federal reserve system ( 2023 ), ‘ review of the federal reserve ’ s supervision and regulation of silicon valley bank ’, report, 28 april ; basel committee on banking supervision ( 2023 ), ‘ report on the 2023 banking turmoil ’, report, october. see european central bank ( 2023 ), ‘ the role of financial stability in monetary policy and the interaction with macroprudential policy in the euro area ’, ecb occasional paper series no 272 ; schroth j ( 2021 ), ‘ optimal monetary and macroprudential policies ’, bank of canada staff working paper no 2021 - 21 ; goldberg je, e klee, es prescott and pr wood ( 2020 ), ‘ monetary policy strategies and tools : financial stability considerations ’, board of governors of the federal reserve system finance and economics discussion series no 074. [ 10 ] this is consistent with work presented at the rba ’ s recent annual conference ; see wood d, i chan and b coates ( 2023 ), ‘ how high inflation is affecting different australian households ’, presentation at the rba annual conference,

the government bonds of just one, or a few, of the members of the currency union. this is an issue that the federal reserve in the united states, the bank of england and the bank of japan have not had to confront as they embarked on their own large - scale purchases of government debt in an effort to lower long - term yields. working through the various challenges is taking the europeans time. the process has been frustratingly slow and we have witnessed some missteps along the way. but for all of that, we should not lose sight of the fact that progress is being made. late last year there was a palpable sense that something might go badly wrong over our summer. clearly, that has not happened. instead, government bond yields for some of the troubled countries in europe have declined a little ( graph 2 ). equity markets have picked up and confidence has improved a bit. and significantly, bank debt markets are functioning again, although the cost of issuing bank debt, relative to government yields, is higher than it was in the middle of last year. as my colleague, guy debelle, discussed earlier this week, an important development over recent months was the ecb ’ s decision to make unlimited funds available ( subject to adequate collateral ) to the european banking system for three years at an interest rate of just 1 per cent. 1 all up, around ½ trillion euros have been lent and a further operation is scheduled to take place later this month. there has also been progress through the various euro - area summits in building political structures that, over time, have the prospect of delivering more disciplined fiscal policy than has been the case in the past. clearly, more will need to be done, and there is still the possibility of a very disorderly outcome in europe. but, at least for the time being, the probability of this seems to have declined a little. obviously how things play out on this front will have a major bearing on how the world economy evolves over 2012. a related issue that i suspect will be discussed frequently in 2012 and beyond is the impact of fiscal consolidation on economic growth. over 2012 and 2013, fiscal policy is set to be quite contractionary in both europe and the united states as governments attempt to put their public finances on a sounder footing. indeed, the aggregate fiscal contraction across the advanced economies is likely to be the largest seen for many decades. this is not because debelle, g, “ on europe ’ s effects on australian financial markets