Economic policy

Welcome remarks by Mr. Edward S. Robinson, Deputy Managing Director (Economic Policy) and Chief Economist, Monetary Authority of Singapore, at the 9th Asian Monetary Policy Forum on May 27, 2022

1 Good morning, Mr. D. MAS Mr. Ravi Menon, NUS Chairman and Chairman of the Board of ABFER, Professor Tan Eng Chye, fellow central bankers, distinguished speakers, ladies and gentlemen. Together with my co-organizers, Professor Bernard Yeung and Professor Steve Davis, I am pleased to welcome you to the Asian Monetary Policy Forum 2022.

2 Now in its ninth year, the AMPF comes at a particularly opportune time for macroeconomists to advance the discussion of emerging issues in the global economy. After the Great Moderation, the world experienced a series of severe shocks, each presenting a severe test for policy makers.

3 The two most recent disruptions—the COVID-19 pandemic and the Russian-Ukrainian conflict—have raised new issues for monetary economics and international finance. Shortly after the Lehman crisis, Queen Elizabeth, during a visit to the LSE, asked an awkward question: “why didn’t anyone see this coming?” It is conceivable that if Her Majesty were to pay another visit today, she might very well ask the same question about global inflation. A comprehensive research program to answer this question would require bringing together at least four sets of concerns.

4 The first focuses on the need for careful identification of each economic shock. Early in the COVID-19 crisis, several macroeconomists, including Martin Eichenbaum and Jason Furman, recognized that the global pandemic was imposing an unusual mix of shocks. It is not simply that the pandemic has reduced aggregate supply by making workers sick, or that mobility restrictions have reduced private consumption demand. Instead, dynamic interactions between supply and demand disturbances caused discontinuous changes.

The current flurry of inflationary shocks, including those catalyzed by geopolitical events in February, have also highlighted that supply can be relevant to swings in the business cycle, alongside the more commonly recognized swings in aggregate demand. Supply factors can no longer be considered low-frequency phenomena relevant only as determinants of long-term growth. On the contrary, in a globalized world, shocks in one jurisdiction can lead to a blockage of production through supply chain links, leading to short-term effects on growth and inflation in other economies. These coordination failures within and across industries are most relevant today.

6 Second, once the nature of the shock is correctly characterized, the appropriate policy response must be made. Clearly, policies need to be carefully crafted. Traditional fiscal priming was not appropriate to deal with hard lockdowns during the pandemic, while tighter monetary policy would not directly alleviate supply-side, cost-push inflationary pressures. To complicate the picture, when multiple types of shocks are at play, coordination between different policy instruments becomes imperative. Fiscal support aimed at preserving real incomes in a supply-constrained economy during a global pandemic must then be followed by a rapid withdrawal of stimulus measures and monetary tightening during the recovery phase to anticipate subsequent inflationary consequences.

7 Researchers can add value to policy discourse by providing clearly articulated frameworks that map optimal policy responses to specific shocks and provide guidance on their coordination. Some flexibility must also be given to individual country policy responses reflecting their particular circumstances.

8 The third The set of questions focuses on labor market considerations that have emerged, through the prism of both micro and macro perspective. During the COVID-19 shock, preventing labor market scarring was the primary concern, prompting policymakers to experiment with innovative policy designs to preserve existing job matches while facilitating some necessary sectoral reallocations over time. . Fast forward to today, supply shocks from the Russia-Ukraine crisis may interact with tight labor markets to amplify inflationary pressures. So, “Where is the flat Phillips curve?” Has the short-term inflation-unemployment trade-off worsened and will wages and prices begin to increase each other in a recursive loop?

9 Given the key role of the labor market in recent shocks, the ability to track labor market outcomes in real time is of considerable value. At the height of the pandemic, Steve Davis, Nick Bloom and Raj Chetty, among others, built valuable new survey-based frameworks to make labor market data available at higher frequency and faster than sources. official. Most of this data was granular enough to differentiate economic effects across income, sector and geography distributions.

10 The Fourth and the final set of issues involves the interaction of pre-pandemic structural trends with cyclical developments. Recent global shocks have profound implications for previously identified structural trends such as secular stagnation and the changing relationship between technology and employment. Workers’ increased reliance on remote solutions during the pandemic has likely accelerated the digitalization of tasks, which in turn has broader implications for income distribution and productivity growth, as well as for the housing market. On the other hand, other structural trends may have been somewhat halted by recent events; for example, pandemic and geopolitical disruptions have injected further fragmentation impulses into the global economy and eventual unanchored economies from their previous low inflation equilibria.

11 These four issues – the complex nature of shocks, as well as the appropriate policy response, labor market effects, and interactions with pre-pandemic structural trends – are key pivots facing the global economy. And they will each have an audition at this year’s Forum. Professor Viral Archarya kicked us off last night with an astute and realistic assessment of the global landscape before us and the vulnerabilities lurking in financial market adjustments, drawing on his research.

12 For the Policy Note session on “Labour Market Policies after COVID-19”, our speakers are Professor Eric French and Professor John Haltiwanger, two eminent labor economists whose work central bankers have always paid particular attention to. They will discuss how best for countries to formulate labor market policies in the wake of the pandemic to restore and rebuild the capacity of workers to engage in the labor market of tomorrow.

13 At lunchtime, we are privileged to have Professor Emi Nakamura virtually. She will talk about “Inflation, Monetary Policy and the Phillips Curve”, a topic that has become dominant in political considerations this year.

14 Professor Ricardo Reis, author of this year’s commissioned study, will anchor today’s discussions. It will examine whether monetary policy has placed an excessive emphasis on the natural real interest rate, which we call r* and measure by government bond yields, a parameter that is inherently tricky to define and problematic to measure. Despite these difficulties, r* seems to have come to take center stage in assessments of the relevance of policy guidance, a conundrum that Professor Reis will help clarify. We are delighted to have Professor Andres Velasco and Professor Vissing-Jorgensen with us to discuss the article.

15 But first, we are honored to have Dr. Li Bo, Deputy Managing Director of the IMF, to deliver the keynote address for AMPF2022. He brings with him extensive experience in economic policymaking, having held various positions related to monetary and macroprudential policy at the People’s Bank of China, before taking up his current position at the IMF. Dr. Li’s breadth of experience and depth of technical expertise will provide relevant insights in this complex global environment.