On the other hand, the consideration of guarding against the risk of future financial imbalances that may disturb activity and inflation somewhat further ahead suggest that the key policy rate should not be kept low for too long. Chart 10: Percentage change in the CPI since the beginning of each decade. 1980s and 2000s Chart 11: Percentage growth in mainland GDP since the beginning of each decade. 1980s and 2000s Drawing some of the threads together from the past decade, it can be said that inflation has been fairly stable and close to the target, which shows that monetary policy has been effective. Compared with the 1980s, for example, inflation has been considerably lower the past decade and growth in the mainland economy has been markedly higher. There has been no conflict between low inflation and high economic growth as many economists previously maintained. 4 The challenges encountered have provided new insight. Inflation is not self-stabilising and there are costs involved in bringing it back to target. The Bank’s analyses and communication have evolved. The Bank has gained insight into how the interest rate functions under an inflation targeting regime. Economic agents have become familiar with our response pattern. In interest rate setting, we do not give weight exclusively to bringing inflation back to target, but also take into account the impact of the interest rate on output and employment. After a decade of learning, inflation targeting has become more flexible. That flexibility is good to have, and easy to lose.
As you will have so many other matters to discuss, apart from the economy and the euro, you must forgive me for dedicating so much time to my own specific subjects. To conclude, I am sure these present Tertulias will, as in all the previous meetings, be successful, that the participants will enjoy themselves, and that our British friends will have very good memories of this visit to Madrid. Thank you. 2  BIS central bankers’ speeches