The keynote lecture of the joint NBU-NBP Annual Research Conference was devoted to an issue, which is topical both for advanced and developing economies.
Alan Auerbach, University of California, Berkeley, spoke about the problem of economic inequality, aging and capital mobility, and their implications for fiscal and monetary policies.
Today, economic inequality and a demographic shift toward older populations in countries around the world are increasing pressures on fiscal policy (in the case of inequality, to address economic need; and in the case of population aging to fund important spending programs targeted toward the elderly).
In his speech, Alan Auerbach took the USA as an example and showed the risks related to these phenomena, focusing on a fiscal gap. He mentioned that projections through 2050 assume that a large part of the fiscal gap stems from old-age spending growth.
Therefore, urgent measures are needed to smooth the negative implications of the two factors for the economy. The keynote lecturer believes that fiscal policy should become more active, though the available tax instruments may fail to produce the expected effect, being limited by the higher mobility of capital that we can observe today.
On the other hand, monetary policy has a very limited number of instruments that could help resolve the problem. Increased inflation that could facilitate replenishing of the budget, will also push up social spending.
At the same time, with high inequality, aging and capital mobility, pressures on the fiscal policy will be fueling pressures, including the political one, on monetary policy and the central bank. Under such circumstances, the independence of a central bank is critically important, and instruments for resolving challenges should be found in the fiscal area rather than in the monetary one.
Monetary policy normalisation in developed economies
The first panel discussion of the NBU-NBP Annual Research Conference addressed the fiscal implications of monetary policy normalization (returning interest rates to normal levels after a long period of low rates as an anti-crisis measure) in advanced economies.
The panel discussion was open by Alan Auerbach, Professor of Economics and Law from the University of California, Berkley, who focused on the specific nature of, and the challenges faced by, U.S. fiscal and monetary policies. Although the U.S. inflation rate has been almost unchanged over the past three years, and no factors that could lead to a surge in inflation are looming on the horizon, the Fed has decided to raise its Federal funds rate target. Meanwhile, the country’s unemployment rate has hit a low not seen since the Vietnam War, driven by significant fiscal and monetary stimuli.
This has direct implications for fiscal policy. On the one hand, higher interest rates push up debt servicing costs. On the other hand, for replenishing the budget and executing social programs low rates are more of an obstacle than anything else. Indeed, the U.S. economy has taken the unsustainable path of fiscal policy because of the difficulties with meeting social obligations, especially taking into account the country’s demographic situation. Under such conditions, the normalization of interest rates, which will increase budgetary spending on public debt servicing, will limit fiscal space and the United States will have to rely more on monetary policy.
Cecilia Skingsley, a speaker from Sveriges Riksbank, talked about the roles fiscal and monetary policies played in stabilizing the Swedish economy in the 1990s. Among other things, she described Swedish macroeconomic reform that delivered the sustainability of government finances by setting four clear-cut criteria for a balanced general government budget, budgetary spending, balanced local budgets, and consolidated budget debt. In Sweden, fiscal and monetary policies play different roles. Fiscal policy’s largest contribution to economic stability is in maintaining trust in the long-term sustainability of government finances. That is why when demand shocks arise, the government takes little action, letting monetary policy take the lead in stabilizing inflation and demand. However, there is ongoing debate in Sweden whether this approach is effective under the inflation targeting regime, and whether or not it leads to a conflict between fiscal and monetary policies.
Cecilia Skingsley also spoke about the modern challenges faced by Sveriges Riksbank. Effective inflation targeting is impossible without trust to the central bank. However, the monetary policy normalization creates a challenge as it raises financial risks for the central bank that has accumulated government bonds on its balance sheet as a result of quantitative easing.
Kristin Forbes from Massachusetts Institute of Technology, the third participant of the discussion, spoke about the reasons why developed countries find it difficult to bring interest rates back to the pre-crisis levels. She believes that this may be due to several factors: unsteady economic recovery after the crisis, a drop in neutral rates of interest, new shocks that restrain inflation growth, such as lower oil prices and elections, and changes in central banking (new macroprudential tools, increased publicity of central bankers and other).
This brings up a question: how can a central bank determine the right time to normalize its monetary policy and raise the interest rate when standard models do not work? In the opinion of Kristin Forbes, the answer lies in the analysis of inflation data broken down by temporary cycles and the long-term trend that is the signal for hiking the interest rate.
Staying connected: keeping the numbers moving in the finance industry
By Robert Gibson-Bolton, Enterprise Manager, NetMotion
2020 will certainly be hard to forget. Amongst the many changes we have come to live with, for many of us it has been adapting to a new style of working. Whatever your take on it is, remote working, working from home or even agile working, one thing remains clear – for many of us, this could be the new-normal for the foreseeable future. The professional services sector is no different. For example, many finance practices around the world are now allowing staff to work from home part of the time. In addition, a recent KPMG report found that half of the UK’s financial services workforce want to work from home after COVID-19.
Will this therefore become the de facto working practice for the finance industry too? We can’t say for sure, but this agile approach to working has certainly caused a major rethink for many firms. And as they evolve and adapt to meet the demands of a different way of working, firms need to ensure that their workforce can seamlessly interact with each other and their clients – this is key if they want to continue to deliver exceptional client service. Whilst financial services organisations everywhere are busy adopting innovative new technologies to better reflect the ‘work from anywhere environment’, they need to ensure secure access to resources and strive towards enhancing the end user experience. Success will be replicating the office working experience at home or wherever else they may be.
It’s all well and good for a firm to boast about the ability of their staff to work successfully from home, but how do they also establish that their people are just as productive as they were before? Whilst the IT department will have to grapple with security and compliance issues that arise from agile and remote working, they must also ensure that their people can connect securely, without eschewing user experience. And it needs to be completely seamless, without compromising the service level provided to clients.
Why all the fuss?
Which brings us nicely to persistent connectivity. Persistent connectivity effectively allows you to do more. How frustrating for the user when connectivity drops, or when the device that they are working on can’t find a network to connect to (or if the device switches between different networks). When connectivity drops, and re-connection is required then there is that small period where the user is not connected at all. And the user might have to re-authenticate or log into their VPN again (most VPNs are rubbish when they lose connectivity). All of these different scenarios ultimately disrupt the user experience – persistent connectivity provides the flexibility to overcome these challenges. When you enjoy consistent connectivity, you are making sure that the technology works as it was designed to work, allowing staff to rely on optimum user experience, anytime, anywhere – in effect, supplying them with that office-like experience, wherever they are. Just think about how many hours might be spent on a train, in a hotel or even on a client site. Consistent connectivity is key here – consistent in any of these locations.
Connectivity will be a fundamental component for successful remote working as firms try to meet the demands of an increasingly mobile workforce. Ultimately, they need encrypted and reliable connections that enable them to quickly and easily reach business applications and services. Working in a disconnected environment can lead to frustrated workers, hardly fitting given all the new remote working policies in place.
Getting the user experience spot-on
When you fine-tune connection performance so that essential business applications run reliably across networks, you are essentially talking about traffic optimization. Mobile traffic optimization ensures that applications, resources and connections are tuned for weak and intermittent network coverage and can roam between wireless networks as conditions and availability change. When connections aren’t performing well, applications that are crucial for job performance can experience packet loss, jitter or latency that can make working on the hoof extremely tricky. Compared to wired networks, wireless networks operate under highly variable conditions, including such factors as terrain or congested mobile towers. When you optimise the flow of traffic, you are helping to manage packet loss. Effectively, packet losses are data loss, which happens very regularly when you’re on the move or transitioning between different networks. Applications that require a lot of data tend to become fairly unusable when you hit even minor packet loss, which can be a common occurrence for many on residential broadband or on local Wi-Fi. conversely, NetMotion can enable critical applications to work and prevent disruptions at over 50% packet loss – in this way, employees can rely on technology performing well in situations and locations where it simply could not before. That is incredibly powerful for firms.
The finance industry is facing many of the same challenges presented to other industries. It is a question of balancing the requirement for more sophisticated ways to ensure secure access to resources with the need to enhance the end user experience (key team members in particular). For finance firms everywhere, adopting the right technologies will ensure that their people can enjoy a ‘work-from-anywhere’ environment.
Hong Kong’s Cathay Pacific warns of capacity cuts, higher cash burn
(Reuters) – Cathay Pacific Airways Ltd on Monday warned passenger capacity could be cut by about 60% and monthly cash burn may rise if Hong Kong installs new measures that require flight crew to quarantine for two weeks.
Hong Kong’s flagship carrier said the expected move will increase cash burn by about HK$300 million ($38.70 million) to HK$400 million per month, on top of current HK$1 billion to HK$1.5 billion levels.
Hong Kong is set to require flight crew entering the Asian financial hub for more than two hours to quarantine in a hotel for two weeks, the South China Morning Post reported last week, citing sources.
“The new measure will have a significant impact on our ability to service our passenger and cargo markets,” Cathay said in a statement, adding that expected curbs will also reduce its cargo capacity by 25%.
The airline, in an internal memo seen by Reuters, requested for volunteers among its crew who could fly for three weeks, followed by two weeks of quarantine and 14 days free of duty, adding it will be a temporary measure and not all its flight will require such an operation.
“We continue to engage with key stakeholders in the Hong Kong Government,” the memo said.
The government did not immediately respond to a request for comment.
Separately, a company spokeswoman said the airline could not detail the impact on vaccine transport specifically in terms of cargo shipments.
The aviation industry has been hit hard by the COVID-19 pandemic as many countries imposed travel restrictions to contain its spread.
In December, Cathay’s passenger numbers fell by 98.7% compared to a year earlier, though cargo carriage was down by a smaller 32.3%.
($1 = 7.7512 Hong Kong dollars)
(Reporting by Shriya Ramakrishnan in Bengaluru; Additional reporting by Jamie Freed in Sydney and Twinnie Siu in Hong Kong; Editing by Bernard Orr and Arun Koyyur)
Travel stocks pull FTSE 100 lower as virus risks weigh
By Shashank Nayar
(Reuters) – London’s FTSE 100 fell on Monday, with travel stocks leading the declines, as rising coronavirus infections and extended lockdowns raised worries about the pace of economic growth, while fashion retailers Boohoo and ASOS gained on merger deals.
The British government quietly extended lockdown laws to give councils the power to close pubs, restaurants, shops and public spaces until July 17, the Telegraph reported on Saturday.
The blue-chip FTSE 100 index dipped 0.1%, with travel and energy stocks falling the most, while the mid-cap index rose 0.1%.
“Stock markets are crawling between optimism around the rollout of vaccines and worries that a jump in virus infections and fresh local lockdowns could further affect recovery prospects,” said David Madden, an analyst at CMC Markets.
Britain has detected 77 cases of the South African variant of COVID-19, the health minister said on Sunday while urging people to strictly follow lockdown rules as the best precaution against the country’s own potentially more deadly variant.
Prime Minister Boris Johnson had earlier warned that the government could not consider easing lockdown restrictions with infection rates at their current high levels and until it is confident that the vaccination programme is working.
The FTSE 100 shed 14.3% in value last year, its worst performance since a 31% plunge in 2008 and underperforming its European peers by a wide margin, as pandemic-driven lockdowns battered the economy.
Online fashion retailers Boohoo and ASOS surged 4.8% and 5.9%, each. Boohoo bought the Debenhams brand, while ASOS was in talks to buy the key brands of Philip Green’s collapsed Arcadia group.
Recruiter SThree Plc gained 0.9% after its profit, which nearly halved, still managed to beat market expectations and the company said it had resumed dividends.
(Reporting by Shashank Nayar in Bengaluru; editing by Uttaresh.V)
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