the new bank of israel conference honoring stanley fischer jerusalem, june 18, 2013
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Inflation Targeting, Disinflation, & Exchange-Rate Policies. Jacob A. Frenkel Chairman, JP Morgan International Former Governor, Bank of Israel. The New Bank of Israel Conference Honoring Stanley Fischer Jerusalem, June 18, 2013. The Rate of Inflation. - PowerPoint PPT PresentationTRANSCRIPT
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The New Bank of IsraelConference Honoring Stanley Fischer
Jerusalem, June 18, 2013
Inflation Targeting, Disinflation, & Exchange-Rate Policies
Jacob A. FrenkelChairman, JP Morgan International
Former Governor, Bank of Israel
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2
133
102
132
191
445
185
20 16 17 21 18 18 9 11 15 8 11 7 9 1.3 0 1.40
50
100
150
200
250
300
350
400
450
Per
cen
t
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
Date: January 2002 Note: data for 2001 refers to November 2001
The Rate of Inflation
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3
-0.3
2.1
1.3
3.6
4.5
5.95.6
3.6
1.0
1.9
1.3
-1
0
1
2
3
4
5
6
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Current Account Deficit as a Percent of GDP
Date: January 2002
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4
-4%
104%
$4 billion
62%
38%
$9 billion
-20
0
20
40
60
80
100
Per
cen
t o
f T
ota
l
1/1989-3/1995 3/1995-3/2000
Trade Transaction
Capital Transaction
* The sum above the columns indicates average cumulative change in transactions p.a. ** Including Unilateral transfers Date: November 2001
Foreign Exchange Transactions: Capital Versus Trade Flows*
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5
Shekel Exchange Rate vs Basket & USD (1)July 1985 - May 1989
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
III IV I II III IV II IV I II III IV I II
1985 1986 1987 1988 1989I III
Sh
eke
ls
Basket
US$
10%
Adjustment of8%v. basket
3%
3%
band
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6
NIS
Shekel Exchange Rate Basket (2) January 1989 - March 1992
1989 1990
1.80
1.90
2.00
2.10
2.20
2.30
2.40
I II III IV I II III IV
+ 3%- 3%
+ 3%-5%
+5%
10%
6%
Shift in band mid-point:
Shift in band mid-point:
6%
band
band
band
Shift in band mid-point:
- 3%
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7
Shekel Exchange Rate versus Basket (3) March 1990 - June 1992
NIS
1.80
1.90
2.00
2.10
2.20
2.30
2.40
2.50
2.60
2.70
II III IV I II III IV I II
1990 1991 1992
-5%
+5%
-5%
+5% -5%
+5%
10%
5%Shift in band mid-point:
Shift in band mid-point:
band
band
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8
Shekel Exchange Rate versus the Basket (4)Early 1992 - June 1994
Date: April 2001
2.4
2.6
2.8
3.0
3.2
3.4
3.6
+5%
-5%
6% slope
8% slope
Band with9%slope +5%
-5%
+5%
-5%
II III IV I II IVI
1992 1993
III I II III IV
1994
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9
Date: April 2001
2.9
3.4
3.9
4.4
4.9
5.4
+7%
-7%
6% slope
4% slope +5%
- 5 %
2% slope
Shekel Exchange Rate versus Basket (5)July 1994 - January 2001
6% slope
III IV I II III IV I II III IV I II III IV I II III IV I II III IV I II III IV I
1995 1996 1997 1998 1999 2000
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Shekel Exchange Rate versus Basket (6)January 1997 - January 2002
Date: December 2001
Slope 6%
Slope 6%
Slope 6% Slope 4% Slope 2%
+7%
-7%
Slope 0%
44.0%
3.5
4.0
4.5
5.0
5.5
Jan-97
NIS
per
un
it o
f b
aske
t
Jan -01 Jan-02Jan-00Jan-99Jan - 98
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11
0%
5%
10%
15%
20%
25%
Exponential Trend
Moving Average
Trade in Options and Futures as a Share of Total Foreign Exchange Transactions
Date: 28 July 1999
(incl. TA stock exchange
Jul - 94 Jan - 95 Jan - 96Jul - 95 Jul - 96 Jul - 99Jan - 97 Jul - 97 Jan - 98 Jul - 98 Jan - 99
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12
10
8.6
3.5
1.62.5
4.3
0
2
4
6
8
10
Jun
-97
Oct
-97
Feb
-98
Jun
-98
Oct
-98
Feb
-99
Jun
-99
Oct
-99
Feb
-00
Jun
-00
Oct
-00
Feb
-01
Jun
-01
Oct
-01
Inflation Expectations Indicators:
Date: January 2002
Per
cen
t
Ave. Forecasters
Capital Markets
3.7
8.4
3.3
2.7
7.7
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1
0.4
-0.1
1.2
-0.3-0.4
0.3
-0.1-0.2
1.4
0.40.4
-0.2
0.5
1.41.3
0.1
-0.5
-0.8
-0.2
0.3
0.5
0.3
0.5
0.7
-0.2
-0.5
0.5
0.9
0.3
-0.6
0.6
0
-0.6
-0.1
0.9
0.40.40.3
0.1
-0.6
3
-0.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5J
ul-
97
Se
p-9
7
No
v-9
7
Ja
n-9
8
Ma
r-9
8
Ma
y-9
8
Ju
l-9
8
Se
p-9
8
No
v-9
8
Ja
n-9
9
Ma
r-9
9
Ma
y-9
9
Au
g-9
9
No
v-9
9
Feb
-00
Ma
y-0
0
Au
g-0
0
No
v-0
0
Feb
-01
Ma
y-0
1
Au
g-0
1
No
v-0
1
Change in the Monthly CPI
Date: November 2001
Ave. 7/97 to 8/98:0.3%
Ave. 12/98 to 11/01: 0.1%
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14
Change in the Annual CPI
Date: January 2002
18.1
10.8
7.8
1.30
1.4*
0
2
4
6
8
10
12
14
16
18
20
Pe
rce
nt
1986-1991 1992-1996
1997-1998
1999 2000 2001
* Note: data for 2001 refers to November 2001
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15
0
5
10
15
20
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Inflation Rate Upper Target Lower Target
Inflation Rate* and the Inflation Target
* Previous 12 months Date: December 2001
14.5
10.0
11.0
8.0
10.0
7.0
4.0
3.0
3.5
2.5
3.0
2.01.0
3.04.0
10.0
Per
cen
t
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16
The Bank of Israel Monthly Interest Rate and Inflation Expectations
Date: December 2001
Per
cen
t
Bank of Israel Interest Rate
Inflation Expectations
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In Nominal and Expected Real TermsBank of Israel Interest Rate
Date: December 2001
2.5
6.0
2.21.3
7.06.0
8.5
2.9
9.3
13.513.4
17.0
6.3
14.0
9.5
3.8
0
2
4
6
8
10
12
14
16
18
1996 1997 1998 1999 2000 2001 2002
BoI Nominal Interest Rate
Expected Real Interest Rate
Expected real interest rate = Effective Bank of Israel interest rate adjusted for inflation expectations
Per
cen
t
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18
108.5
130.1 129.7
105.7
112.1109.7
108.0105.2
107.1
129.2127.8
122.0
100
105
110
115
120
125
130
135
1997 1998 1999 2000 2001 2002
NIS Depreciation & CPI Differential with US
Date: November 2001
Inflation Differential
Depreciation
Cumulative since January 1997
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Israel’s International Credit Ratings
Date: November 2001
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8M
ar-8
0
Mar
-83
Mar
-86
Mar
-89
Mar
-92
Mar
-95
Mar
-98
Mar
-01
BBB-BBB
BBB+A-
A3A2
S&P
Moody’s
Institutional Investor
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0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
1 6 11 16 21
Inflation
Isra
el's
rat
ing
/sa
mp
le a
ve
rag
e
1989
1995
1986
19961994
1992
1993
1987
19881991
1990
1997 19981999
Source: Institutional Investor, semi-annual surveyIncrease = improvement relative to sample (about 100 countries)
International Credit Rating and Inflation1986 to 1999
Date: January 2000
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2.1
4.3
6.4
1.0
2.7
3.7
4.5
2.6
7.1
3.8
2.7
6.5
2.5
2.5
5.0
0.8
2.5
3.3
0.0
2.4
2.4
-0.1
2.4
2.3
2.6
2.4
6.0
-1
0
1
2
3
4
5
6
7
8
Per
cent
1990-1992 1993 1994 1995 1996 1997 1998 1999 2000
GDP per Capita Population
Growth Rate of GDP
Date: April 2001