13  And it has increased the sensitivity of domestic inflation to global inflationary pressures while 14  reducing its responsiveness to changes in domestic slack. Research by the BIS indicates that a doubling  in the share of imported intermediates in GDP causes the importance of global factors for domestic inflation to double as well. 15  Consistent with that, research at the Bank of England indicates that each 1 percentage  point increase in the import intensity of consumption reduces the sensitivity of inflation to domestic slack by 1 per cent, and that the strength of this effect varies with the ease with which producers can switch between imported intermediates and domestic alternatives. 16  Monetary policy makers must take the effects of intermediate trade into account since, unlike commodity shocks, import price changes take time to work through supply chains into final goods prices and therefore affect inflation at the policy-relevant horizon. 17  Labour markets provide a third channel through which globalisation affects domestic inflation. To be clear, globalisation is far from the only factor that has been affecting labour markets in recent decades – and 13  Auer, R, Levchenko, A and Sauré, P (2017), ‘International inflation spillovers through input linkages’, NBER Working Paper No. 23246. A shock that raises inflation by 1 percentage point in the rest of the world is found to raise domestic producer price inflation by (PPI) 0.2pp on average across the countries in the sample.
For example, a country’s long-term growth is determined by developments in the quantity of labour and real capital and technological progress. The best that monetary policy can do is, as I have already observed, to indirectly contribute to favourable economic developments by ensuring that inflation is kept low and stable and that financial stability is good. Although it might be tempting, it is therefore meaningless – and often counter-productive or even damaging – to give the central bank the task of "creating" growth or employment. If one tries to affect growth and employment by systematically keeping interest rates low and increasing liquidity in the economy, or by allowing public sector projects to be financed directly by the central bank, the profits will be only short term. Inflation will rise in a way that will sooner or later become difficult to control – the nominal anchor will loosen – while developments in the real economy risk being poorer than they would have been otherwise. I believe that it is correct to claim that a lack of insight and excessive  5  See, for instance, Bernanke, B.S., (2006), ”The Benefits of Price Stability”, Remarks at The Center for Economic Policy Studies and on the occasion of the 75th Anniversary of the Woodrow Wilson School of Public and International Affairs, Princeton University, February 24. 6  See, for instance, Bernanke, B.S., (2004), “The Great Moderation”, Remarks at the Meetings of the Eastern Economic Association, Washington, DC, February 20.