Andrew G Haldane: Ambidexterity Remarks by Mr Andrew G Haldane, Executive Director, Financial Stability, Bank of England, at the American Economic Association Annual Meeting, Philadelphia, Pennsylvania, 3 January 2014. *  *  *  For most of the post-war period, central banks have executed macro-economic policy with, at most, one hand – the monetary policy hand. It is generally felt that their dexterity improved steadily over that period. This culminated in a long period of low and stable rates of inflation and a steadily growing economy between the mid-1990s and 2007 – the “Great Moderation” [Goodfriend, 2007]. Central banks had becalmed both inflation and the business cycle – and had done so single-handedly. Or so it appeared. But even while the economies of major advanced countries were an ocean of pre-crisis calm, a storm was brewing out in the credit market seas. When this storm hit in 2008, it caused a contraction in global output only rivalled by the Great Depression. Great Moderation turned abruptly to Great Recession. In response, questions began to be asked about whether monetary policy, while necessary, was sufficient to stabilise simultaneously the macroeconomy and the financial system [Bank of England, 2009]. Unlike the Great Depression, central banks’ response to the Great Recession was swift and sizable. Central bank interest rates in most advanced economies quickly fell to close to their floor, while central bank balance sheets rose to new heights.
This is mainly due to a slightly more positive assessment of developments in the United States and Asia, but also to more favourable developments in Latin America, and central and eastern Europe. On the other hand, developments in the euro area, particularly in the larger countries - Germany, France and Italy - have been more subdued than expected and a slightly weaker development is foreseen in the near future than was previously assessed. Although international demand has developed largely as we expected, the same cannot be said for prices. The subdued international price trend in recent years has probably been linked to the earlier economic slowdown. However, there are also other explanatory factors. One possible cause of the weak price pressure is the globalisation of trade and production patterns that has followed in the wake of deregulation and the spread of information technology. Many new markets are being integrated into the global economy, including countries in central and eastern Europe and Asia. We are now seeing weak international price trends for manufactured goods, while there is a sharp rise in commodity prices. This could also be at least partly due to changed international patterns in production and trade. The best example of this is China, with its huge size and rapid industrialisation. The country is now one of the world’s largest commodity importers, particularly crude oil, copper and certain agricultural products.