This is of course good news, but it is rather like one of those TV series which begins with a narrator saying, “Previously on…”. This is a reminder of what has happened so far. What does the next episode contain? Well, the answer is that it hasn’t been anything near fully recorded yet, but we are of course very much in the action. The nature of the recovery I want to frame my assessment of that action in terms of two big questions that we face. First, as we experience a very rapid bounce-back, what conclusions can we draw on the temporary nature of the causes of higher inflation, and what should we look out for to judge if those causes might be more sustained? Second, when the bounce-back from Covid is done, and the temporary features have come to an end, what sort of economy are we likely to be in, and what does that suggest for inflation and growth? It’s clear that we are seeing stronger momentum in economic activity in many parts of the world, including here in the UK, in response to the progressive easing of restrictions and growing confidence of people to be out and about (as revealed in mobility data). The process of normalisation is very dependent on how the two big moving parts of supply and demand respond, whether they recover in synch or not.
Philipp M Hildebrand: Developing countries and international capital markets Summary of a speech by Mr Philipp M Hildebrand, Member of the Governing Board of the Swiss National Bank, to economiesuisse, Zurich, 14 June 2005. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  After having plummeted on the back of the Asian crisis, capital flows to developing countries have risen considerably again in the last three years. In 2005, they are likely to reach the approximate level at which they stood shortly before the Asian crisis. Capital flows are channelled mostly to a few emerging markets, notably China. China’s monetary order is currently undergoing profound changes, with the country gradually liberalising capital movements. The concept of the “impossible trinity”, which was developed by the Nobel Prize winner Robert Mundell, asserts that this will inevitably lead either to a loss in monetary autonomy or to a flexibilisation of the exchange rate regime. Both trends can be clearly observed: the pressure on the fixed exchange rate on the one hand, and the rapid expansion of the monetary and credit aggregates on the other. In the longer term, China’s monetary order will probably move towards floating exchange rates. This transition will hopefully be successful. As China’s monetary policy of gradual change has so far proved its worth, it is likely to serve as an example to other developing countries.