This is remarkable considering the fact that the new jobs have principally been created in the service sector, where productivity generally increases at a lesser rate than in manufacturing. Three principal groups of reasons for the positive trend in America can be distinguished. One important reason behind the upswing appears to be good economic policies. Since the beginning of the 1990s, fiscal policy has been directed towards achieving a balanced budget, and for a year or so now the budget has been balanced. In order to achieve this, taxes have been raised, expenditure 3  BIS Review 132/1999  diminished and budgetary procedures made more stringent. Monetary policy has been directed towards keeping inflation low and stable and has succeeded in warding off both destabilising inflationary and deflationary pressures at an early stage. The policy mix of monetary and fiscal policy therefore appears to have been favourable. A number of structural factors seem to have been important. Deregulations in many sectors and increased globalisation have intensified already tough competition and increased the pressure on the partners on the labour market, leading to greater flexibility in the labour market and enhancing labour mobility. The increased and more effective use of new technology (IT) has raised productivity, and the use of JIT (Just-In-Time Inventory Management) has meant that the match between supply and demand in the economy has improved.
The typical constraint that I had in mind was that monetary policy would have to be temporarily modified in a more expansionary direction, for instance, in order to improve the situation for a fragile financial sector, perhaps winning some time for a financial sector clean-  1  2  The idea that inflation targeting implies that the inflation forecast can be seen as an intermediate target was introduced in King (1994). The term “inflation-forecast targeting” was introduced in Svensson (1997), and the term “forecast targeting” in Svensson (2005). See Woodford (2007a, b) for more discussion and analysis of forecast targeting. 3  Several central banks who do not call themselves inflation targeters effectively do conduct flexible inflation targeting, although they may not be quite as transparent about their inflation target, the role of stability of the real economy, etc. 4  See Goodfriend (2007) for a presentation of the conventional wisdom about pre-crisis monetary policy. See Bean (2003) for a more detailed pre-crisis discussion of inflation targeting, financial imbalances and asset prices. 2  BIS Review 112/2009  up and reform. Interestingly and paradoxically, the constraints financial stability has imposed on monetary policy recently have rather been in the opposite direction to the one I anticipated and have prevented the central banks from lowering the policy rate all the way to zero, or even below, because of concerns about the financial sector. The financial crisis and the deep recession that has followed it have motivated large cuts in the policy rate.