They also help economies to catch up in terms of technology and financial market development through the transfer of knowledge. But recent academic analysis and policy experience, both globally and at euro area level, have revealed that capital flows can pose risks. They can be volatile and pro-cyclical, fuelling economic and financial cycles, and eventually asset price bubbles.
The corrosive influence of inflation on our nation’s productive potential was beginning to take hold. Policymakers slowly came to recognize the adverse long-term consequences of compromising the purchasing power of our currency for economic well being. Indeed, by the late 1970s, a consensus gradually emerged that inflation destroyed jobs rather than facilitating their creation.