In particular, network graphics can be used to visualise “node size” – as a measure of the capital-absorptive capacity of emerging markets – the Small Pond; and “link scale” – as a measure of the capital distribution of advanced economies – the Big Fish. As a first cut, we use a dataset developed at the Bank of England on stocks of cross-border capital, spanning 18 advanced and emerging economies (Kubelec and Sa (2010)).1 This enables us to track the growth in, and financial linkages between, countries over time. Chart 4 plots this international network map at five-year intervals from 1980 to 2005. The node size for each country is measured as the absolute sum of its external assets and liabilities, while the width of the links between nodes measures bilateral gross external assets. Both are in (log) dollar terms. Taken over the past quarter-century as a whole, there is significant evidence of both capital market deepening (increased node size) and integration (increased link size). On average, total stocks of external assets have increased seventeen-fold over this period, rising from around $ trillion in 1980 to $ trillion by 2005. Relative to these countries’ GDP, they have risen from 18% in 1980 to over 70% by 2005. This is consistent with a period of intense financial globalisation. Yet, despite this, the balance of global financial power has not altered markedly.
This is something that I and my colleagues will continue to work on explaining over the coming year. At the same time, it should be emphasised that this is a complex task and that it is therefore quite natural that there is a debate on monetary policy. Nor are we Executive Board members always unanimous on which interest rate decision will be the best one in a given situation, despite the fact that we are agreed on the objective of our monetary policy. Credibility demands openness and clarity In order to combine confidence in price stability in the longer term with flexible inflation targeting, it is important that we are open and clear when conducting our monetary policy. This is also a necessary condition for the legitimacy of the Riksbank’s objective, independence and actions. Important elements of this endeavour include publishing the analyses on which interest rate decisions are based in the form of Inflation Reports. In addition, after every monetary policy meeting a press release is published, which gives an account of the reasons behind the decision made. Moreover, when an Inflation Report is published or the repo rate is adjusted, the Riksbank holds a press conference. The Executive Board’s monetary policy discussions are reported in separate minutes of the monetary policy meetings, which are published around two weeks after each meeting. In this way, all those who wish can closely follow our reasoning and a basis for evaluating our assessments and decisions is created.