Page 2 of 6  Inflation is held at bay by globalisation: a situation where the global rather than the national labour supply is playing a vital role for domestic inflation. The large pool of surplus labour in developing countries is also putting downward pressure on wages and prices in advanced economies.
Free trade and open borders result in an inflow of goods produced in low income countries and of migrants entering the labour force. (Graph 6 – Unconventional instruments playing a larger role). The situation with a low r* may be regarded as a new normal. The size of r* is important for the impact of monetary policy.