In the years of prosperity which preceded the current crisis, the markets were exuberant, as Alan Greenspan famously said, and now they seem to be stricken with almost incurable pessimism and doubt. It is also in the nature of the market economy that the market sentiment is to a large extent self-fulfilling – in the short term at least.
One consequence of lower inflation in Australia is the convergence of our bond yields to international norms, or at least the US norm (Graph 4). Some of you may have been able to remember that as recently as a decade ago, Australian government bonds were 400 basis points higher than US government bonds.