But the upshot is that the efficient organisation of production at the global level is a public good that needs to be preserved. The role of multilateralism after the COVID crisis Trade aside, the present juncture is, in fact, a particularly suitable one for giving fresh impetus to multilateralism. Healthwise, the crisis will clearly not be resolved until immunity against the virus has been achieved in all countries. On the economic front, divergences in the rate of recovery may be particularly harmful for economies that are in a more vulnerable situation. Concerted global action is fundamental both for accelerating vaccine production and for making distribution affordable and fair for everybody. In the economic arena, we need some coordination of crisis exit strategies and, in parallel, support for the most vulnerable countries. Here, international institutions have a crucial role to play, in coordination with regional institutions and mechanisms. The aim is not only to entrench the global economic recovery. We must also combat the backsliding in inequality and poverty as a result of the pandemic, and jointly address the common structural challenges arising, for example, from digitalisation and the fight against climate change. And, more generally, as former ECB President and now Italian Prime Minister – Mario Draghi – put it: “one of the main reasons why multilateral institutions exist is to create regulatory convergence, and therefore to increase trust between countries”.2 A role for multilateral institutions that goes way beyond their pure economic mandate.
16  All speeches are available online at www.bankofengland.co.uk/news/speeches  16  Charts Chart 1: The social loss associated with different monetary policy rules under different calibrations of lambda  Source: Bank calculations  Chart 2: The relative performance of level-based and difference-based rules under different relative importance of persistent vs temporary shocks  Source: Bank calculations 17  All speeches are available online at www.bankofengland.co.uk/news/speeches  17  Chart 3: Impact of a persistent risk premium shock that is misjudged to be temporary  Source: Bank calculation  Chart 4: Impact of simultaneous persistent and temporary risk premium shocks (relative weight 2.3 times)  Source: Bank calculations 18  All speeches are available online at www.bankofengland.co.uk/news/speeches  18  Annex: Model specification This model is based on a variant of a model developed by Harrison, Seneca and Waldron. It consists of 5 basic equations. IS curve: 𝑦̃𝑡 = 𝐴𝑦̃𝑡−1 + 𝐵𝔼𝑡 𝑦̃𝑡+1 − 𝐶(𝑖𝑡 − 𝔼𝑡 𝜋𝑡+1 − 𝑟𝑡∗ ) Phillips curve: ∗ 𝜋𝑡 = 𝐷𝜋𝑡−1 + 𝐹𝔼𝑡 𝜋𝑡+1 + 𝐺[𝐻(𝑦̃𝑡 + 𝑦𝑡∗ ) + 𝐽(𝑦̃𝑡−1 + 𝑦𝑡−1 ) − 𝐾𝑧𝑡 ] + 𝑢𝑡  Potential output 𝑦𝑡∗ : ∗ 𝑦𝑡∗ = 𝐿𝑧𝑡 + 𝑀𝑦𝑡−1  Natural rate 𝑟𝑡∗ : ∗ ∗ 𝑟𝑡∗ = 𝑁𝑦𝑡−1 + 𝑄𝑦𝑡∗ + 𝑆𝔼𝑡 𝑦𝑡+1 − 𝜈𝑡  where all capital letters denote functions of underlying parameters, 𝑦̃𝑡 is the output gap, and the risk premium 𝜈𝑡 , the cost-push disturbance 𝑢𝑡 and productivity 𝑧𝑡 follow exogenous autoregressive processes.