Hyun Song Shin Profile picture
Dec 9, 2021 26 tweets 11 min read Read on X
The opening seminar for the Indonesian G20 presidency was a good opportunity to take stock of #bottlenecks and #inflation risks

A thread follows

bis.org/speeches/sp211…
Supply bottlenecks have grabbed all the headlines recently, but longer-term structural changes brought about by the pandemic (labour markets, especially) are important to understand where we are headed

bis.org/publ/bisbull47…
But first, a recap of where we stand on #bottlenecks

The sharp swings in some commodity prices (lumber, iron ore, coal) are suggestive of #bullwhip effects

For their part, shipping costs look to have peaked
Semiconductor billings (left panel) point to demand that has outpaced supply that is growing, but not growing fast enough;

#bullwhip effects show up in rising motor vehicle inventories at the factory, even as retail inventories have fallen
Durable goods have driven the surge in #inflation (middle panel), especially in the United States

But there is a great deal of diversity across regions; Asia has not seen the same surge in inflation
We should not disregard inconvenient price changes, but it's worth pointing out how unusual the surge in durable goods prices is; it bucks the trend of falling relative price of durables over the last few decades
How quickly will #bullwhip effects go into reverse once backlogs begin to ease? Depending on the answer, we may find that bottlenecks are resolved faster than currently feared, just as they have lasted longer than initially expected
But there is something of a race against time; if the current inflation surge feeds a wage-price spiral and rising inflation expectations, the task will be much harder

Hence my focus on labour markets in today's presentation at the G20
The trajectory of total hours worked is similar across regions; hours fell by 10-20% with the pandemic shock and have bounced back since

But these similar trajectories have come about in strikingly different ways

This chart holds the key to some puzzling developments
There are three ways that hours worked could fall:
(1) increase in unemployment, (2) drop in average hours worked per employee, and (3) a decline in labour force participation

The respective roles of these three factors differ widely across economies
In the US, unemployment and labour force participation account for the fall in hours worked;

In the euro area and other AEs, furlough schemes kept worker-firm relationships intact (yellow bars);

EMEs were hit hard by the pandemic and labour force participation dropped sharply
The differences in the way that hours worked declined have influenced the shape of the recovery;

Evidence is in the Beveridge curves across countries
The Beveridge curve plots the relationship between the unemployment rate and job vacancies

Normally, changes in economic activity would show up as shifts *along* the Beveridge curve with stronger activity showing up as lower unemployment and higher job vacancies
Check out this podcast where @tracyalloway and @TheStalwart speak to Thomas Lubik on how to read the evidence from the US

bloomberg.com/news/articles/…
Rather than moving *along* the Beveridge curve, the US has seen a rightward shift, usually seen as a sign of a skills-jobs mismatch

But there is no such shift in euro area or Japan; and the UK Beveridge curve has started to drift out since the middle of the year
Usual interpretation of a rightward shift in the Beveridge curve is as a mismatch between jobs and skills; after the GFC there was a reallocation from the real estate sector

But this doesn't work this time round; vacancies are highest in services that saw the largest job losses
In any case, the contrast *across* countries is very striking; in the euro area and Japan, there is no sign of any deterioration of the jobs-skills match

In this sense, preserving the employment relationships appears to have steered the recovery toward the pre-pandemic state
We need to understand better these differences; firms and workers are part of the intricate web of relationships in the economy with relationship-specific capital that acts as the “glue” for the economy

@B_Eichengreen has written eloquently on the topic
project-syndicate.org/commentary/cov…
The ties that bind all of us as colleagues, neighbours, workers and employers arguably go beyond the transactional nature of the weekly payslip
On the other hand, the recent upward drift in the UK Beveridge curve from the middle of 2021 suggests that any simplistic explanation will be found wanting, as the UK had also implemented furlough schemes similar to euro area economies
How these differences in labour market functioning translate into wage growth is key for #inflation, but wages are particularly hard to read at the moment due to pandemic related shifts in the composition of employment and the effect of furlough schemes
bis.org/publ/bisbull47…
Wage growth across advanced economies looks to have been in line with its pre-pandemic trends, or a little below; and here, the outcomes of recent wage negotiations are filling in much needed detail...
It is notable that in the United States, where labour market changes are most apparent, wage growth has picked up recently despite labour market conditions that appear weaker than before the pandemic
Let me gather the links in one place for easier reference

Text of my G20 speech
bis.org/speeches/sp211…

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More from @HyunSongShin

Feb 28, 2023
BIS working paper introducing a new dataset on emerging market sovereign bonds; tracking the currency of denomination and the residence of investors

"Overcoming original sin: insights from a new dataset"

bis.org/publ/work1075.…
The new dataset gives a comprehensive picture of long-term government bonds, in line with the renewed focus on market/duration risk and the activity of non-bank financial intermediaries (NBFIs)

Follow the link to the dataset and compilation guide

bis.org/publ/work1075.…
There are also two accompanying data visualisation tools as easy-to-use dashboards

The first is a cross-section dashboard that shows how the currency denomination and non-resident investor share show up as a scatter... and how the chart evolves over time
bis.org/temp/panels/sm…
Read 6 tweets
Feb 18, 2023
Inspired by the debate between @nfergus and @adam_tooze on the current state of globalisation, I devoted my lecture at Columbia this week to take the pulse on global value chains:

"Global value chains under the shadow of Covid"

bis.org/speeches/sp230…
First, some background to set the scene

Real exports have grown but so has real GDP; we need to scale trade by the size of the economy, taking account of the different price indices (exports are goods heavy, GDP is services heavy as @BaldwinRE has argued eloquently)
The ratio of global real exports to global real GDP looks like this
Read 22 tweets
Dec 17, 2022
"There is a bitter irony in the turmoil currently gripping the crypto universe..."

My op-ed in the FT on the great unravelling of crypto

ft.com/content/76234c…
While we survey the wreckage and plot a course for the policy response to rein in the sector, we need to keep in mind some home truths

Crypto operates under the banner of decentralisation, but it is highly centralised in two crucial respects
First, many supposedly decentralised protocols turn out to be highly concentrated in governance and control

In most instances, crypto is decentralised in name only
Read 15 tweets
May 18, 2022
Will commodity prices tip the global economy into a 1970s-style stagflation?

Today's #BIS_Bulletin weighs the arguments and does some number crunching in search of an answer

A thread:
bis.org/publ/bisbull54…
Price rises have affected a broader range of commodities this time round than in the 1970s (for instance, see the yellow bar on industrial metals), but the size of the oil price shock has been much less than the 1973 shock
The inflationary backdrop was more menacing in 1973, with the global economy having lost the Bretton Wood nominal anchor a couple of years before; arguably, policy frameworks are much better now

On the other hand, the recent rise in inflation (in yellow) has been steep
Read 17 tweets
Apr 16, 2022
Central banks are picking up the pace in their work on digital currencies, moving from talk to actions

On 9-10 February, I chaired a meeting of deputy governors from 26 EM central banks

Here is a thread on the key lessons, just published

bis.org/publ/bppdf/bis…
In the run-up to the meeting, Mexico and India had announced their intention to launch their CBDCs and set the tone toward practical design choices

Here's a summary table from the report; numbers indicating extent of buy-in (1.0 means unanimity) Image
Competition and financial inclusion figured prominently

CBDCs are close cousins to instant payment systems that rest on digital ID and technical standards (APIs) that ensure interoperability

Brazil's Pix shows what's possible

Read 9 tweets
Apr 4, 2022
Crypto markets have found an outlet in centralized finance, or "DeFi"

Is DeFi the acceptable face of crypto?

Or can central bank digital currencies (CBDCs) do DeFi but without selling coins for speculation?

A thread on a panel I chaired this morning Image
One notable development has been the fragmentation of the blockchain universe, with #Ethereum giving up its dominance to newer chains

The chart below shows the percentage of collateral value locked in various chains; #Ethereum had close to 100%; now barely 50% Image
Such fragmentation suggests that network effects are not operating (or operating strongly); typically, businesses with network effects give rise to "winner takes tall"

Crypto markets are not an example of such markets
Read 17 tweets

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