Remarks at the Global Research Forum on International Macroeconomics and Finance

November 17, 2022
Beverly Hirtle, Director of Research and Head of the Research and Statistics Group
Introductory remarks at the Global Research Forum on International Macroeconomics and Finance As prepared for delivery

Good morning. It is my pleasure to welcome you to the 2022 Global Research Forum on International Macroeconomics and Finance, jointly sponsored by the European Central Bank, the Federal Reserve Board, and the Federal Reserve Bank of New York. The papers and discussions today will highlight a number of important issues related to the global economy and financial markets, as well as the policies that central banks and other official sector bodies can take to address existing developments and emerging risks affecting growth, inflation and financial stability. As always, I need to caveat my remarks today by saying that they reflect my personal views and not necessarily the views of the Federal Reserve Bank of New York or the Federal Reserve System.

This biennial conference is an important opportunity for our organizations to collaborate on bringing frontier research to our audiences. Past conferences have highlighted cutting-edge research by leading experts on global financial markets, the effect of macroprudential regulation in the open economy, international monetary policy coordination, and many other topics that are very relevant in today"s world. The fourth and most recent in-person edition of the conference was held before the pandemic, in 2018, and hosted by the ECB. At that time, the focus of the conference, as well as academic research and policymakers, was on the progress made in achieving and maintaining global financial stability in the decade after the eruption of the global financial crisis.

The pandemic and more recently geopolitical tensions have brought unique challenges to all economies around the world. In this respect, this year"s forum will focus on these challenges facing central banks, including paths of recovery from the COVID-19 pandemic, the effects of sanctions and elevated inflation. The world economy is experiencing a period of heightened volatility and uncertainty. Inflation is very high in the U.S. and abroad. In response, central banks around the world are tightening monetary policy rapidly to contain demand in their own jurisdictions.

As it will be discussed in this conference in the next two days, there are non-negligible cross-border effects of domestic monetary policy tightening in each country.  The timing and degree of tightening by each country spill over through demand for real goods and services, through financial conditions, and through international capital flows. For example, monetary policy tightening reduces domestic demand for foreign goods, dampening trade flows both at the level of intermediate goods and final goods. At the same time, tightening domestic financial conditions can spill over to foreign financial conditions, amplifying the effects monetary tightening by foreign central banks.   

Therefore, in this global environment, it is very important to remember that global capital flows and trade linkages transmit and may amplify the impact of domestic shocks and policy actions across borders. Understanding these spillovers and spillbacks is a critical element of determining appropriate policy to meet domestic mandates for growth, employment, and price stability.

The other side of imbalances we have been facing since the pandemic is related to the supply side of the global economy. Supply chain disruptions have become a major challenge for the global economy since the start of the COVID-19 pandemic. For example, changes in the Global Supply Chain Pressure Index (GSCPI) developed by the New York Fed staff are shown to be associated with goods and producer price inflation in the United States and the Euro area. Recent news on the supply side is encouraging for inflation developments: the GSCPI has been declining since April. The ongoing easing of global imbalances, through both improvements in supply disruption and reduction in demand at the global level, should help bringing inflation back to central banks" targets.

Today"s conference will cover these issues in depth. More specifically, the sessions cover themes related to exchange rates, monetary policy in the international context, trade and banking, global liquidity flows, investor portfolio reallocations around climate shocks, and key drivers and prospects of inflation in the global context. Let me provide a brief walk through of the conference agenda, to whet your appetite for what"s to come over the next two days.

The conference"s first session – up next after my remarks – focuses on exchange rates. It features papers that seek to better understand the behavior of exchange rate movements in reaction to changes in economic fundamentals or policy shocks, such as sanctions, as well as the impact of relative price changes on the spillover of monetary policy across economies.

The second session examines trade and the international banking system. The research presented in this session studies how the "real" and "financial" side of the international economy are intertwined. Papers in this session explore how cross-border trade integration impacts countries" decisions on opening the economy to international capital markets, as well as exploring how the "trade-finance" interaction affects banks" lending decisions, firms" financial risk, and the ability for firms to react to external shocks.

Tomorrow, the first session turns to the ever-pertinent topic of capital flows and the international role of the U.S. dollar. Papers in this session provide an in-depth analysis of how capital flows react to changes in the global landscape. The first paper asks how climate change impacts the global portfolio reallocation of capital, while the remaining sessions analyze the unique role of U.S. monetary policy and the U.S. dollar in explaining international financial flows.

The conference will conclude with a Policy Panel of esteemed colleagues from academia, policy institutions and the private sector who will discuss the key drivers and prospects for inflation in the current global environment. Our panelists bring a diverse range of perspectives, which is critical for garnering rich insights.  They are Elaine Buckberg, of General Motors; Matteo Ciccarelli, from the European Central Bank; Mark Gertler, from New York University; Steve Kamin, from the American Enterprise Institute; and Ṣebnem Kalemli-Özcan of the University of Maryland. The panel will be moderated by Linda Goldberg, my colleague here at the New York Fed. The discussion promises to be lively and engaging. The expertise our distinguished panelists bring should deepen our understanding of the key drivers and prospects of inflation at the global level arising both from supply and demand side factors, as I alluded to at the beginning of my remarks.

Let me conclude by thanking the Organizing Committee of this conference.  This team includes Ozge Akinci, Julian di Giovanni, and Linda Goldberg from the NY Fed; Juan Londono and Friederike Niepmann from the Federal Reserve Board, and Arnaud Mehl, Georg Strasser, and Isabel Vansteenkiste, European Central Bank.

So once again, let me welcome you to the New York Fed and to the Global Research Forum. With that, I will turn it over to Ozge, who is chairing the first session.

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