The MPCs Policy Dilemma Charles Bean Deputy Governor ABI Economics - - PowerPoint PPT Presentation

The MPC’s Policy Dilemma

Charles Bean

Deputy Governor ABI Economics and Research Conference, London 03 March 2011

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Chart 1: Output after banking crises Chart 1: Output after banking crises

10th‐90th percentile Percent of pre‐crisis trend; mean difference from year t 1 10 20 Interquartile range Estimated mean path difference from year t = ‐ 1 10 UK ‐20 ‐10 ‐40 ‐30 ‐50 ‐1 1 2 3 4 5 6 7 Distance in years from the first year of crisis

Source: IMF and Bank calculations. (a) Sample of 88 banking crises. Output per capita relative to trend measured from the 10 years before the crisis to 3 years before. 2

Distance in years from the first year of crisis

Chart 2: GDP projection Chart 2: GDP projection

Source: February 2011 Inflation Report. 3

Chart 3: Selected primary commodity prices Chart 3: Selected primary commodity prices

Source: February 2011 Inflation Report. 4

Chart 4: Income elasticity of oil and GDP Chart 4: Income elasticity of oil and GDP

Percentage point Developing Asia 8 10 growth in GDP, 2010 Asia l Latin America 6 8 Oil exporters Rest of World 4 Advanced economies 2 0.05 0.1 0.15 Estimated income elasticity of demand

5 Sources: IEA World Energy Outlook, 2006 and IMF. Income elasticities of demand are short‐run estimates based on annual data from 1979 to 2005.

Chart 5: Oil demand and supply

Millions of b l d

Chart 5: Oil demand and supply

Forecast 95 100 Total demand Total production T t l d ti it barrels per day 90 95 Total production capacity 80 85 75 70 1996 2001 2006 2011

6 Source: Cambridge Energy Research Associates.

Chart 6: Sterling effective exchange rate

110.0

Chart 6: Sterling effective exchange rate

Index 100 = 2005

100 0 105.0 90 0 95.0 100.0

£ERI

80 0 85.0 90.0

+‐2 standard deviation Within period average

75.0 80.0 70.0 90 94 98 02 06 10

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Chart 7: Gauging import price pass‐through

UK goods ex VAT/energy vs €A goods ex energy (RHS) Percentage Percentage

Chart 7: Gauging import price pass‐through

1 4 UK goods ex VAT/energy vs €A goods ex energy (RHS) UK goods ex‐energy vs UK services (LHS) Percentage points Percentage points ‐1 1 2 3 ‐3 ‐2 ‐1 1 ‐5 ‐4 4 ‐3 ‐2 15% dep 20% app 25% d ‐7 ‐6 ‐6 ‐5 ‐4 dep app dep

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92 94 96 98 00 02 04 06 08 10

Chart 8: Contribution of import prices to CPI inflation

9 Source: February 2011 Inflation Report.

Chart 9: Contribution of VAT, energy and import prices to CPI inflation

10 Source: February 2011 Inflation Report.

Chart 10: CPI inflation projection Chart 10: CPI inflation projection

11 Source: February 2011 Inflation Report.

Chart 11: Short‐term inflation expectations p

Source: February 2011 Inflation Report.

Chart 12: Longer‐term inflation expectations

Source: February 2011 Inflation Report.

The MPC’s Policy Dilemma The MPC s Policy Dilemma THE END THE END

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