The world has in the past experienced lengthy periods of continuously positive annual growth: in the UK, for a remarkable 26 years after the Second World War and for 16 years during the Great Moderation starting in the late 1990s. As Chart 12 shows, however, these are extreme outliers in the distribution of expansions. The probability of an expansion lasting for longer than 10 years is, on past evidence, less than 10%. 5  Assuming these probabilities evolve according to a Bernoulli distribution – that is to say, the probability of a recession triggering shock occurring in one year is independent of the probability of a shock occurring in another year. This probability is calculated by looking at data on the frequency of negative annual growth rates. The cumulative probability is the probability that there will be at least one such shock over a given horizon. 6  Using conditional probabilities – for example, on starting in recession or expansion – does not dramatically alter these cumulative probabilities. BIS central bankers’ speeches  5  If a recession were to strike in the period ahead, a relevant question for monetary policy is how much room for manoeuvre might be necessary to cushion its effects. History can again offer some guide. Table 1 looks at loosening cycles in the UK, US, Germany and Japan in the period since 1970 and in the period since 1994. There has been considerable variation in the scale and duration of loosening cycles over time and across countries.
Yugoslavia, Mexico and Egypt had the advantage of being close to the critical export markets in the developed world. Honduras and Tanzania had precious metal deposits, as did several of the other Latin American and African countries. Singapore had nothing, was over-populated and had high unemployment. Many economists of the day predicted that countries in Latin America and Africa would outgrow over-populated, resource-scarce Asia. The outcome, however, was totally different. Living standards have barely risen in Honduras in the last 40 years, and have declined in Tanzania. Tito's Yugoslavia no longer exists. East Pakistan fought a war with West Pakistan and separated to become Bangladesh. Civil war and internal disorder tore up countries like Liberia, Ethiopia and Uganda. Singapore which was written off by pundits as being not viable without the Malaysian hinterland not only survived but thrived. Its GDP per capita increased more than six-fold, better than any of the other 15 countries represented in my class. Why have the growth experiences of individual countries been so disparate? Some of you might have watched the movie, "The Good, the Bad, and the Ugly", released, coincidentally, exactly 40 years ago. Set during the American Civil War, it was about three bandits who each held one clue to a hidden trove of gold coins. They did not trust each other, and wanted all the money for themselves. In the end, the "Good" bandit who put all the three clues together won.