Nevertheless, there are still uncertainties… Which element needs the greatest vigilance? Progress has to be made on all points in a resolute way. In respect of governance, in the past, at the ECB, we have found ourselves preaching in the wilderness, when negligence by governments, markets and by many economists was the rule.
Figure 1 shows the movement in New Zealand’s real effective exchange rate since 1964. The current level of the real effective exchange rate is well above its 50 year historical average. The level of the real effective exchange rate is considered unsustainable when it is clearly deviating from its long-run equilibrium.