8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
1/48
1%(5:25.,1*3$3(56(5,(6
21('(&$'(2),1)/$7,217$5*(7,1*,17+(:25/'
:+$7'2:(.12:$1':+$7'2:(1(('72.12:"
)UHGHUL60LVKNLQ
.ODXV6KPLGW+HEEHO
:RUNLQJ3DSHU
KWWSZZZQEHURUJSDSHUVZ
1$7,21$/%85($82)(&2120,&5(6($5&+
0DVVDKXVHWWV$YHQXH
&DPEULGJH0$
-XO\
:HWKDQN0DUN6WRQHIRUH[.HOOHQW.RPPHQWVDVZHOODV%HQ%HUQDQNH%HQQHWW0.&DOOXPDQGRWKHUSDUWL.LSDQWV
DWWKH&HQWUDO%DQNRI&KLOH&RQIHUHQ.HRQ7HQ
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
2/48
2QH'HDGHRI,QIODWLRQ7DUJHWLQJLQWKH:RUOG
:KDW'R:H.QRZDQG:KDW'R:H1HHGWR.QRZ"
)UHGHUL60LVKNLQDQG.ODXV6KPLGW+HEEHO
1%(5:RUNLQJ3DSHU1R
-XO\
-(/1R(((
$%675$&7
2QHGHDGHRILQIODWLRQWDUJHWLQJLQWKHZRUOGRIIHUVOHVVRQVRQWKHGHVLJQDQGLPSOHPHQWDWLRQ
RILQIODWLRQWDUJHWLQJWKHRQGXWRIPRQHWDU\SROL\DQGRXQWU\SHUIRUPDQHXQGHULQIODWLRQWDUJHWLQJ
7KLV SDSHUUHYLHZVEULHIO\WKH PDLQGHVLJQIHDWXUHVRILQIODWLRQ WDUJHWLQJ H[SHULHQHVDQDO\]HV
VWDWLVWLDOO\LIRXQWULHVXQGHULQIODWLRQWDUJHWLQJDUHVWUXWXUDOO\GLIIHUHQWIURPQRQLQIODWLRQWDUJHWLQJ
LQGXVWULDORXQWULHVDQGUHYLHZVH[LVWLQJHYLGHQHDERXWWKHVXHVVRILQIODWLRQWDUJHWLQJ7KHLQWHUDWLRQ
RILQIODWLRQWDUJHWLQJGHVLJQIHDWXUHVDQGWKHRQGXWRIPRQHWDU\SROL\GXULQJWUDQVLWLRQWRORZLQIODWLRQ
DUHWDNOHGQH[W7KHSDSHUHQGVE\IRXVLQJRQXQUHVROYHGLVVXHVRQGHVLJQDQGLPSOHPHQWDWLRQRI
LQIODWLRQWDUJHWLQJDQGWKHLUUHODWLRQWRWKHRQGXWRIPRQHWDU\SROL\RSHQLVVXHVWKDWKDYHWREH
DGGUHVVHGLQWKHQH[WGHDGHRILQIODWLRQWDUJHWLQJ
)UHGHUL60LVKNLQ .ODXV6KPLGW+HEEHO
*UDGXDWH6KRRORI%XVLQHVV &HQWUDO%DQNRI&KLOH
8ULV+DOO $JXVWLQDV
&ROXPELD8QLYHUVLW\ 6DQWLDJR&KLOH
1HZ
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
3/48
,QWURGXWLRQ
7KH HPHUJHQ.H RI LQIODWLRQ WDUJHWLQJ RYHU WKH ODVW WHQ \HDUV KDV EHHQ DQ H[.LWLQJ
GHYHORSPHQWLQWKHDSSURD.KRI.HQWUDOEDQNVWRWKH.RQGX.WRIPRQHWDU\SROL.\$IWHULQLWLDO
DGRSWLRQ E\ 1HZ =HDODQG LQ LQIODWLRQ WDUJHWLQJ KDV EHHQ WKH .KRL.H RI D JURZLQJ
QXPEHU RI .HQWUDO EDQNV LQ LQGXVWULDO DQG HPHUJLQJ H.RQRPLHV DQG PDQ\ PRUH DUH
.RQVLGHULQJIXWXUHDGRSWLRQRIWKLVQHZQHZPRQHWDU\IUDPHZRUN
2QH GH.DGH RI LQIODWLRQ WDUJHWLQJ LQ WKH ZRUOG RIIHUV OHVVRQV RQ WKH GHVLJQ DQG
LPSOHPHQWDWLRQ RI LQIODWLRQ WDUJHWLQJ WKH .RQGX.W RI PRQHWDU\ SROL.\ DQG .RXQWU\
SHUIRUPDQ.H XQGHU LQIODWLRQ WDUJHWLQJ ,Q VH.WLRQ WKLV SDSHU UHYLHZV EULHIO\ WKH PDLQ
GHVLJQIHDWXUHVRILQIODWLRQWDUJHWLQJH[SHULHQ.HVDQDO\]HVVWDWLVWL.DOO\LI.RXQWULHVXQGHU
LQIODWLRQWDUJHWLQJDUHVWUX.WXUDOO\GLIIHUHQWIURPQRQLQIODWLRQWDUJHWLQJLQGXVWULDO.RXQWULHV
DQGUHYLHZV H[LVWLQJHYLGHQ.HDERXWWKHVX..HVVRI LQIODWLRQWDUJHWLQJ7KHLQWHUD.WLRQRI
LQIODWLRQWDUJHWLQJGHVLJQIHDWXUHVDQGWKH.RQGX.WRIPRQHWDU\SROL.\GXULQJWUDQVLWLRQWR
ORZ LQIODWLRQ DUH WD.NOHG LQ VH.WLRQ 7KHQ WKH SDSHU IR.XVHV RQ XQUHVROYHG LVVXHV RQ
GHVLJQ DQG LPSOHPHQWDWLRQ RI LQIODWLRQ WDUJHWLQJ DQG WKHLU UHODWLRQ WR WKH .RQGX.W RI
PRQHWDU\SROL.\VH.WLRQ%ULHI.RQ.OXVLRQV.ORVHWKHSDSHU
:KDW'R:H.QRZDERXW,QIODWLRQ7DUJHWLQJDIWHUD'HDGHRI:RUOG([SHULHQH"
:KRGRHVLQIODWLRQWDUJHWLQJDQGKRZ"
,QIODWLRQ WDUJHWLQJ VWDUWHG D GH.DGH DJR ZLWK SXEOL. DQQRXQ.HPHQWV RI LQIODWLRQ
WDUJHWVLQ1HZ=HDODQGDQG&KLOH$..RUGLQJWRRXU.RXQWLQIODWLRQWDUJHWLQJ.RXQWU\
.DVHVKDYHEHHQUH.RUGHGDVRI1RYHPEHU7KH\LQ.OXGHDYDULHW\RIH[SHULHQ.HVWKDW
.RPSULVHLQGXVWULDODQGHPHUJLQJH.RQRPLHVWUDQVLWLRQDQGVWHDG\VWDWHLQIODWLRQWDUJHWHUV
VHPLDQGIXOOIOHGJHGWDUJHWHUVROGDQGUH.HQWVWDUWHUVDQG.XUUHQWDQGIRUPHUWDUJHWHUV
&ODVVLI\LQJ.RXQWU\.DVHVLQWRLQIODWLRQWDUJHWLQJDQGRWKHUPRQHWDU\UHJLPHVLQYROYHVVXEMH.WLYH.KRL.HVIRU
WZR UHDVRQV)LUVWWKHUHLVOD.NRIIXOODJUHHPHQWRQ WKHPDLQ .RQGLWLRQVDQG IHDWXUHVRILQIODWLRQWDUJHWLQJ
DQG KRZ WKH\ DSSO\ GXULQJ WUDQVLWLRQ WR ORZ LQIODWLRQ DQ LVVXH WKDW ZH GLV.XVV EHORZ 6H.RQG VRPH
.RXQWULHV KDYH XVHG VLPXOWDQHRXVO\ LQIODWLRQ WDUJHWVDQGRWKHUQRPLQDO DQ.KRUVWKHH[.KDQJH UDWHDQGRU D
PRQHWDU\DJJUHJDWHSDUWL.XODUO\DWWKHLUHDUO\\HDUVRILQIODWLRQWDUJHWLQJ,0)0DKDGHYDDQG6WHUQH
DQG6WHUQH GLV.XVVDQG SUHVHQW.RPSUHKHQVLYH.RXQWU\.ODVVLIL.DWLRQV RIPRQHWDU\ UHJLPHV
5HIOH.WLQJ GLIIHUHQW .ODVVLIL.DWLRQ .ULWHULD UH.HQW .URVV.RXQWU\ VWXGLHV RI ,7 H[SHULHQ.HV GLIIHU LQ WKHLU
.RXQWU\ VDPSOHV HJ %HUQDQNH /DXED.K 0LVKNLQ DQG 3RVHQ 6.KDH.KWHU 6WRQH DQG =HOPHU
&RUER/DQGHUUHW.KHDQG6.KPLGW+HEEHODQG&RUERDQG6.KPLGW+HEEHO
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
4/48
)LJXUHGHSL.WVDGRSWLRQGDWHVDQGLQLWLDOLQIODWLRQUDWHVDW\HDURIDGRSWLRQIRUWKH
.RXQWU\VDPSOH
:HLQWURGX.HWZR.RXQWU\JURXSVIRU.DUU\LQJRXWRXUHPSLUL.DODQDO\VLV.RQGX.WHG
IRUWKHGH.DGHRIWKHV7DEOHDVDPSOHRILQIODWLRQWDUJHWHUVDQGD.RQWUROJURXS
RI QRQWDUJHWHUV 7KH ILUVW VDPSOH RI LQIODWLRQ WDUJHWHUV ODEHOHG LQIODWLRQ WDUJHWHUV LV
.RPSULVHGE\DKHWHURJHQHRXVJURXSRILQGXVWULDODQGHPHUJLQJH.RQRPLHV$XVWUDOLD
%UD]LO &DQDGD &KLOH &RORPELD&]H.K 5HSXEOL. )LQODQG ,VUDHORUHD0H[L.R 1HZ
=HDODQG3HUX3RODQG 6RXWK$IUL.D6SDLQ6ZHGHQ7KDLODQG DQG WKH8QLWHGLQJGRP
)LQODQG DQG 6SDLQ GURSSHG RXW RI WKLV JURXS ZKHQ UHOLQTXLVKLQJ PRQHWDU\ SROL.\ DW
DGRSWLRQRIWKHHXURLQ
7KH VH.RQG VDPSOH LV D .RQWURO JURXS RI LQGXVWULDO H.RQRPLHV WKDW ZHUH QRW
LQIODWLRQ WDUJHWHUV GXULQJ WKH V 'HQPDUN )UDQ.H *HUPDQ\ ,WDO\ -DSDQ 1RUZD\
3RUWXJDO 6ZLW]HUODQG DQG WKH 86 $PRQJ WKHVH DUH WZR .RXQWULHV *HUPDQ\ DQG
6ZLW]HUODQGWKDWKDGH[SOL.LWPRQHWDU\WDUJHWVLQSOD.HGXULQJPRVWRIWKHV.RXOGEH
.ODVVLILHG DV LPSOL.LW LQIODWLRQ WDUJHWHUV DV DUJXHG E\ %HUQDQNH /DXED.K0LVKNLQ DQG
3RVHQWZR.RXQWULHVZLWKRXWH[SOL.LWWDUJHWV-DSDQDQGWKH86DQGWKHUHPDLQLQJ
(XURSHDQ.RXQWULHVWKDWWDUJHWHGWKHLUH[.KDQJHUDWHWRWKHGHXWV.KPDUNEHIRUHDGRSWLQJ
WKHHXURLQ
,QIODWLRQ WDUJHWHUV H[KLELW VRPH .RPPRQDOLWLHV DQGPDQ\ GLIIHUHQ.HV LQ LQIODWLRQ
WDUJHWLQJSUH.RQGLWLRQV WDUJHWGHVLJQDQGRSHUDWLRQDOIHDWXUHV)RXUVW\OL]HGID.WVHPHUJH
IURP.RXQWU\H[SHULHQ.HVDQGIHDWXUHVDVVXPPDUL]HGLQ7DEOH
6WDUWLQJ GDWHV DUH GHILQHG E\ WKH ILUVW PRQWK RI WKH ILUVW SHULRG IRU ZKL.K LQIODWLRQ WDUJHWV KDYH EHHQ
DQQRXQ.HGSUHYLRXVO\)RU H[DPSOHWKHVWDUWLQJGDWHIRU&KLOHLV-DQXDU\WKHILUVWPRQWKRI.DOHQGDU
\HDU IRU ZKL.K WKH ILUVW LQIODWLRQ WDUJHW ZDV DQQRXQ.HG LQ 6HS 7KH LQLWLDO LQIODWLRQ OHYHO LV
GHILQHGDVWKH\HDURQ\HDU&3,LQIODWLRQUDWHRIWKHODVWTXDUWHUEHIRUHWKHILUVWPRQWKRILQIODWLRQWDUJHWLQJ
IRUH[DPSOHWKHIRXUWKTXDUWHURILQWKH.DVHRI&KLOH7KHQXPEHURILQIODWLRQWDUJHWHUVHLJKWHHQLVRQHOHVVWKDQWKHQLQHWHHQLQ)LJXUHDQG7DEOHEH.DXVH6ZLW]HUODQGZDVQRWDQLQIODWLRQWDUJHWHULQWKHV*HUPDQ\DGRSWHGWKHHXURLQHDUO\DQG6ZLW]HUODQGDGRSWHGLQIODWLRQWDUJHWLQJLQ7KHXVHRIWKLV.RQWUROJURXSRIKLJKLQ.RPHLQGXVWULDOH.RQRPLHVZLWKDOWHUQDWLYHPRQHWDU\IUDPHZRUNVLQ
SOD.H UHIOH.WV RXUREMH.WLYH WR OLQN DGRSWLRQRI LQIODWLRQ WDUJHWLQJZLWK VWUX.WXUDO IHDWXUHV REVHUYHG LQ WKH
ZRUOG VDPSOH RI LQGXVWULDO DQG KLJKHU PLGGOHLQ.RPH .RXQWULHV%\ GHILQLQJ D .RQWURO JURXSRIKLJK
SHUIRUPLQJH.RQRPLHVZLWKVLPLODUIHDWXUHVWRWKRVHWKDWKDYHDGRSWHGLQIODWLRQWDUJHWLQJPDNHVLWVWDWLVWL.DOO\
PRUHGLIIL.XOWWRLGHQWLI\VLJQLIL.DQWGHWHUPLQDQWVRIWKH.KRL.HRILQIODWLRQWDUJHWLQJWKDQLIZHKDG.KRVHQD
.RQWUROJURXSLQ.OXGLQJGHYHORSLQJ.RXQWU\QRQLQIODWLRQWDUJHWHUV
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
5/48
L)XOOIOHGJHG LQIODWLRQ WDUJHWLQJLV EDVHGRQILYHSLOODUVDEVHQHRIRWKHUQRPLQDO
DQKRUVDQLQVWLWXWLRQDORPPLWPHQWWRSULHVWDELOLW\DEVHQHRIILVDOGRPLQDQH
SROL\ LQVWUXPHQW LQGHSHQGHQHDQGSROL\ WUDQVSDUHQ\DQGDRXQWDELOLW\:KLOH
SLOODUVWRDUHUHTXLUHPHQWVIRUHIIH.WLYH.RQGX.WRIPRQHWDU\SROL.\XQGHUDQ\UHJLPH
WKH\DUHSDUWL.XODUO\LPSRUWDQWSUHUHTXLVLWHVIRUHIIH.WLYHSROL.\XQGHULQIODWLRQWDUJHWLQJ
7KHUHDVRQ LV WKDW WKH VX..HVVRI LQIODWLRQ WDUJHWLQJ GHSHQGVVR VWURQJO\ RQKLJKPDUNHW
.UHGLELOLW\ LQ WKH .HQWUDO EDQNV UHVROYH DQG DELOLW\ WR SXW LQWR SOD.H SROL.LHV JHDUHG DW
PHHWLQJWKHWDUJHW$QG.UHGLELOLW\LVIRVWHUHGE\WKHILYHLQVWLWXWLRQDOSLOODUV
LL,QIODWLRQDGRSWLRQUDQJHVIURPHYROXWLRQDU\WRUHYROXWLRQDU\0DQ\.RXQWULHVKDYH
DGRSWHG LQIODWLRQ WDUJHWLQJ ZLWKRXW VDWLVI\LQJ RQH RU PRUH RI WKH DERYH PHQWLRQHG
.RQGLWLRQV )RU H[DPSOH &KLOHDQG ,VUDHO WDUJHWHG WKH H[.KDQJH UDWH GXULQJPRVW RI WKH
V ,VUDHO VWLOO GRHV LW WRGD\ 7KH %DQN RI (QJODQG VWDUWHG LQIODWLRQ WDUJHWLQJ ZHOO
EHIRUHDWWDLQLQJLQVWUXPHQWLQGHSHQGHQ.H0RVW.RXQWULHVDGRSWHGLQIODWLRQWDUJHWLQJZHOO
EHIRUH D.KLHYLQJ KLJK OHYHOV RI SROL.\ WUDQVSDUHQ.\ LQ.OXGLQJ SXEOL.DWLRQ RI LQIODWLRQ
UHSRUWVLQIODWLRQSURMH.WLRQVDQGPRQHWDU\SROL.\PHHWLQJPLQXWHVDQGIXOOD..RXQWDELOLW\
6RPH.RXQWULHVLQ.OXGLQJ&RORPELD,VUDHORUHD0H[L.R3HUXDQG6RXWK$IUL.DGR
QRWSXEOLVKLQIODWLRQIRUH.DVWV\HW2QWKHRWKHUH[WUHPHLV%UD]LOZKRDGRSWHGIXOOIOHGJHG
LQIODWLRQWDUJHWLQJULJKWIURPWKHVWDUW
&RXQWU\ H[SHULHQ.HVXJJHVWV WKDW DGRSWLRQ RI LQIODWLRQ WDUJHWLQJ GXULQJ WKH V
KDVEHHQHTXLYDOHQW WRDPRQHWDU\SROL.\ OHDUQLQJSUR.HVV2QO\E\QRZ WKHUHLVDEURDG
.RQVHQVXVDERXWWKH.RQGLWLRQVWKDWVKRXOGEHLQSOD.HIRUHIIH.WLYHIXOOIOHGJHGLQIODWLRQ
WDUJHWLQJ+RZHYHUWKHVHSUHUHTXLVLWHVZHUHOHVVREYLRXVLQWKHILUVWKDOIRIWKHVZKHQ
HDUO\LQIODWLRQWDUJHWHUVSHUIH.WHGWKHLUIUDPHZRUNE\OHDUQLQJIURPWKHLURZQDQGWKHRWKHU
LQIODWLRQWDUJHWHUV.XPXODWLYHH[SHULHQ.H
LLL,QIODWLRQUDQJHVIURPPRGHUDWHO\KLJKWRYHU\ORZDWLQIODWLRQWDUJHWLQJDGRSWLRQ
GDWHV 6RPH .RXQWULHV DGRSWHG LQIODWLRQ WDUJHWLQJ ZKHQ WKHLU LQIODWLRQ UDWHV ZHUH ZHOO
DERYH VWHDG\VWDWH OHYHOV XVLQJ LQIODWLRQ WDUJHWLQJ DV WKH PDLQ GHYL.H WR EXLOG XS
.UHGLELOLW\EULQJGRZQLQIODWLRQH[SH.WDWLRQVDQGSXUVXHDSDWKRI.RQYHUJHQ.HWRORZDQG
VWDWLRQDU\ LQIODWLRQ 7KLV LV WKH .DVH RI HDUO\ HPHUJLQJ.RXQWU\ LQIODWLRQ WDUJHWHUV WKDW
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
6/48
VWDUWHG DW LQLWLDO LQIODWLRQUDWHVRI &KLOH ,VUDHO3HUXDQG VXEVHTXHQWHPHUJLQJ
.RXQWU\ DGRSWHUV ZKHUH LQLWLDO LQIODWLRQ ZDV LQ WKH UDQJH RI &]H.K 5HSXEOL.
&RORPELD 0H[L.R 3RODQG 7KLV VWDQGV LQ .RQWUDVW WR DOO LQGXVWULDO.RXQWU\ DQG VRPH
HPHUJLQJ.RXQWU\LQIODWLRQWDUJHWHUVWKDWVWDUWHGDWLQLWLDOLQIODWLRQ.ORVHWRVWDWLRQDU\ORZ
OHYHOV
0XOWL\HDU WUDQVLWLRQV WRZDUG VWHDG\VWDWH LQIODWLRQ SRVH VHULRXV .KDOOHQJHV DQG
GLIIL.XOWLHVWRLQIODWLRQWDUJHWLQJLQ.OXGLQJWKHQHHGIRUDQQRXQ.LQJDQQXDOLQIODWLRQWDUJHWV
WKDWDUHPX.KKDUGHUWRPHHWXQGHU.RQGLWLRQVRIKLJKLQIODWLRQH[SH.WDWLRQVDQGOLPLWHG
SROL.\.UHGLELOLW\:HSRVWSRQHGLV.XVVLRQRIWKHLVVXHVUHODWHGWRWUDQVLWLRQWRORZLQIODWLRQ
WRVH.WLRQEHORZ
LY ,QIODWLRQ WDUJHWHUV YDU\ ZLGHO\ UHJDUGLQJ LQIODWLRQ WDUJHWLQJ LPSOHPHQWDWLRQ
IHDWXUHV LQOXGLQJ WDUJHW SULH LQGH[ WDUJHWZLGWK WDUJHW KRUL]RQ HVDSH ODXVHV
DRXQWDELOLW\ RI WDUJHW PLVVHV JRDO LQGHSHQGHQH DQG RYHUDOO WUDQVSDUHQ\ DQG
DRXQWDELOLW\ UHJDUGLQJ RQGXW RI SROL\ XQGHU LQIODWLRQ WDUJHWLQJ 6RPH RI WKHVH
GLIIHUHQ.HV.DQEHDWWULEXWHGWR.RXQWU\YDULDWLRQLQLQVWLWXWLRQVDQGKLVWRU\RWKHUUHIOH.WWKH
GLIIHUHQ.HV EHWZHHQ LQIODWLRQ WDUJHWLQJ LQ WUDQVLWLRQ WRZDUG DQG DW ORZ LQIODWLRQ DV
GLV.XVVHG EHORZ0RUHRYHU VRPH GLIIHUHQ.HV RI LQIODWLRQ WDUJHWLQJ GHVLJQ IHDWXUHVDOVR
UHIOH.W GLIIHUHQW YLHZV DPRQJSROL.\ PDNHUV DQG D.DGHPL.V DERXW KRZ PRQHWDU\ SROL.\
XQGHULQIODWLRQWDUJHWLQJVKRXOGEH.RQGX.WHGLQ.RQGLWLRQVRIORZLQIODWLRQ
$UHLQIODWLRQWDUJHWHUVGLIIHUHQW"
$UH .RXQWULHV WKDW DGRSW LQIODWLRQ WDUJHWLQJGLIIHUHQW IURP LQGXVWULDO QRQLQIODWLRQ
WDUJHWHUVUHJDUGLQJVWUX.WXUDO.RQGLWLRQVDQGPD.URH.RQRPL.SHUIRUPDQ.H"+HUHZHWD.NOH
WKLVTXHVWLRQE\ .RPSDULQJRXU VDPSOHRI LQIODWLRQ WDUJHWHUV WRWKH.RQWUROJURXSRI
LQGXVWULDOQRQWDUJHWHUVGHILQHGDERYH:HIR.XVRQWKHUHODWLRQEHWZHHQKDYLQJRUQRWDQ
LQIODWLRQ WDUJHWLQJ IUDPHZRUN LQ SOD.H DQG D VHW RI VWUX.WXUDO LQVWLWXWLRQDO DQG
PD.URH.RQRPL.IHDWXUHV7KHHPSLUL.DODQDO\VLVKHUHLVQH.HVVDULO\SUHOLPLQDU\EH.DXVHDV
GLV.XVVHG LQ IRRWQRWH LW LV QRW DOZD\V HDV\ WR GH.LGH ZKHWKHU D .RXQWU\ VKRXOG EH
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
7/48
.ODVVLILHGDVHQJDJLQJLQLQIODWLRQWDUJHWLQJRUQRW)XUWKHUPRUHGHWHUPLQLQJWKHH[D.WGDWH
RIDGRSWLRQRIDQLQIODWLRQWDUJHWLQJUHJLPHLVRIWHQTXLWHGLIIL.XOW2IIL.LDOVDWPDQ\.HQWUDO
EDQNVZHKDYH .RQVXOWHGRIWHQJLYHGDWHV IRU WKH DGRSWLRQRI LQIODWLRQ WDUJHWLQJ WKDW DUH
HDUOLHU WKDQ RXWVLGHUV GR HJ %HUQDQNH HW DO 7KH XQ.HUWDLQW\ RI GDWLQJ RIWHQ
IROORZV IURP WKH ID.W WKDW LQIODWLRQ WDUJHWLQJ LVDGRSWHG JUDGXDOO\ RYHU WLPHPDNLQJ WKH
H[D.WGDWHRIDGRSWLRQGLIIL.XOWWRGHWHUPLQH
2XUGDWDVHWLV.RPSULVHGE\DQQXDOYDULDEOHVIRU.RXQWULHVDQG\HDUV
RIGDWD7KHIR.XVLVRQWKHGLV.UHWHLQIODWLRQWDUJHWLQJUHJLPHYDULDEOHWKDWWDNHVD
YDOXH RI ZKHQ DQ LQIODWLRQ WDUJHWLQJ UHJLPH LV LQ SOD.H RU ZKHQ DQ DOWHUQDWLYH
PRQHWDU\UHJLPHLVLQSOD.HDQGDVHWRIYDULDEOHVWKDW.RXOGEHDVVR.LDWHGZLWKWKH.KRL.H
RI DQ LQIODWLRQ WDUJHWLQJ UHJLPH 7KH ODWWHU YDULDEOHV LQ.OXGH PHDVXUHV RI WKH XVH RI
DOWHUQDWLYHQRPLQDODQ.KRUVDPHDVXUHRIH[.KDQJHUDWHEDQGZLGWKDQGDPRQHWDU\WDUJHW
GXPP\ VWUX.WXUDO .RQGLWLRQV WUDGH RSHQQHVV .HQWUDO EDQN LQGHSHQGHQ.H PHDVXUHV
IRUPDO LQGHSHQGHQ.H LQVWUXPHQW LQGHSHQGHQ.H DQG JRDO LQGHSHQGHQ.H DQG
PD.URH.RQRPL.YDULDEOHVWKHLQIODWLRQUDWHDQGWKHILV.DOVXUSOXVUDWLRWR*'3
7DEOH UHSRUWV .URVV.RXQWU\ DQG SDQHO VWDWLVWL.V DQG .RUUHODWLRQV IRU LQIODWLRQ
WDUJHWLQJ DQG UHODWHG YDULDEOHV 7KH GDWD UHIOH.W ODUJHYDULDWLRQ LQDOO YDULDEOH.DWHJRULHV
D.URVV.RXQWULHVDQGRYHUWLPHLQRXU.RXQWU\VDPSOH3DQHO.RUUHODWLRQVDUHVRPHWLPHV
YHU\GLIIHUHQWIURP.URVV.RXQWU\.RUUHODWLRQVLQ.OXGLQJ.DVHVRI.KDQJHVLQVLJQV7KLVLVD
OLNHO\UHVXOWRIWKHQRLVHHQ.RXQWHUHGLQDQQXDO.RXQWU\GDWDKHQ.HZHIR.XVRQ.URVV
.RXQWU\.RUUHODWLRQV
+DYLQJLQIODWLRQWDUJHWLQJLQSOD.HLVSRVLWLYHO\DQGVLJQLIL.DQWO\.RUUHODWHGZLWKQR
LQGLYLGXDOYDULDEOHDQGQHJDWLYHO\DQGVLJQLIL.DQWO\.RUUHODWHGRQO\ZLWKPRQHWDU\JURZWK
WDUJHWV 07 ,QIODWLRQ WDUJHWLQJ LV SRVLWLYHO\ DQG QRW VLJQLIL.DQWO\ .RUUHODWHG ZLWK WUDGH
RSHQQHVV2SHQWKHILV.DOVXUSOXVUDWLRWR*'3)LV.DOH[.KDQJHUDWHEDQGZLGWK%:
DQG .HQWUDOEDQN LQVWUXPHQW LQGHSHQGHQ.H &%,, DQG QHJDWLYHO\ DQG QRW VLJQLIL.DQWO\
)RUH[DPSOHDOWKRXJKWKH.HQWUDOEDQNVRI3HUXDQG&RORPELDGRDQQRXQ.HLQIODWLRQWDUJHWVWKHLUPRQHWDU\
SROL.\ IUDPHZRUNV GR QRW .RQWDLQ PDQ\ .UX.LDO IHDWXUHV RI DQ LQIODWLRQ WDUJHWLQJ UHJLPH 0LVKNLQ DQG
6DYDVWDQR RUHD LV .ODVVLILHG DV DQ LQIODWLRQ WDUJHWHUEH.DXVH LW GRHVKDYH DQ DQQRXQ.HG LQIODWLRQ
WDUJHW DQG \HW LWDSSHDUVWR KDYH EHHQSXUVXLQJD GHID.WR H[.KDQJHUDWH SHJ LQWKHILUVW WZR\HDUV RILWV
LQIODWLRQWDUJHWLQJUHJLPHZKL.KLVLQ.RQVLVWHQWZLWKDQLQIODWLRQWDUJHWLQJUHJLPH1RWHWKDWLIZHGURSWKHVH
WKUHH.RXQWULHVIURPWKHVDPSOHWKHHPSLUL.DOUHVXOWVUHSRUWHGDERYHDUHQRWDSSUH.LDEO\DIIH.WHG 6LPLODU GHILQLWLRQV DUH XVHG IRU RWKHU GLV.UHWH YDULDEOHV XVHG KHUH VHH WKH 'DWD $SSHQGL[ IRU YDULDEOH
GHILQLWLRQVDQGVRXU.HV
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
8/48
.RUUHODWHGZLWKQRUPDOL]HGLQIODWLRQ,QI.HQWUDOEDQN IRUPDO LQGHSHQGHQ.H&%),DQG
.HQWUDOEDQNJRDOLQGHSHQGHQ.H&%*,
1H[W ZH LQWURGX.H D PXOWLYDULDWH SURELW PRGHO IRU WKH OLNHOLKRRG RI KDYLQJ DQ
LQIODWLRQWDUJHWLQJ UHJLPH LQ SOD.H EDVHG RQ WKH REVHUYDWLRQ RI WKH YDULDEOHV LGHQWLILHG
DERYH7KHPRGHOVSH.LILHVWKHSUREDELOLW\RIKDYLQJDQLQIODWLRQWDUJHWLQJUHJLPHLQSOD.H
3U,7_DVDIXQ.WLRQRIWKHYDULDEOHVLQWURGX.HGDERYH
3U,7_I,QI2SHQ)LV.DO%:07&%),&%*,&%,,
([SH.WHG .RHIIL.LHQW VLJQVDUHSRVLWLYH IRU)LV.DO %: DQG WKH WKUHHPHDVXUHVRI
.HQWUDOEDQNLQGHSHQGHQ.HQHJDWLYHIRU07DQGDPELJXRXVIRU,QIDQG2SHQ
%HIRUHWXUQLQJWRWKHUHVXOWVZHQRWHWKDW.DXWLRQVKRXOGEHH[HU.LVHGLQWKH.DXVDO
LQWHUSUHWDWLRQRIHTXDWLRQ:KLOH.HUWDLQ VWUX.WXUDO IHDWXUHVPD\ EHH[RJHQRXV WR WKH
.KRL.HRILQIODWLRQWDUJHWLQJLWLVYHU\OLNHO\WKDWDGRSWLRQRI LQIODWLRQWDUJHWLQJUHTXLUHV
DQGKHQ.H.RQWULEXWHVWRUHQRXQ.LQJWKHXVHRIRWKHUQRPLQDOWDUJHWVLPSURYLQJPD.UR
SHUIRUPDQ.HVX.KDVUHGX.LQJLQIODWLRQDQGLPSURYLQJWKHILV.DOVWDQ.HDQGVWUHQJWKHQLQJ
.HQWUDO EDQN LQGHSHQGHQ.H DVZHDUJXHEHORZ+HQ.HSRWHQWLDO UHYHUVH.DXVDWLRQVKRXOG
OHDGWR.DUHIXOLQWHUSUHWDWLRQRIWKHHPSLUL.DOUHVXOWV
1RLV\ UHVXOWV IRU WKH IXOO SDQHO SURELW UHJUHVVLRQ OHG XV WR UHSRUW .URVV.RXQWU\
UHVXOWVRQO\EDVHGRQ.RXQWU\GH.DGHDYHUDJHVIRUHD.KYDULDEOHLQ.OXGLQJWKHGHSHQGHQW
YDULDEOHLHWKHLQIODWLRQWDUJHWLQJUHJLPH.KRL.H:HVWDUWE\GLV.XVVLQJWKHIXOOVDPSOH
UHVXOWVLQWKHILUVW.ROXPQRI7DEOH
,QIODWLRQ WDUJHWLQJ LV SRVLWLYHO\ DQG VLJQLIL.DQWO\ DVVR.LDWHG ZLWK WKH OHYHO RI
QRUPDOL]HG LQIODWLRQ D UHVXOW WKDW UHIOH.WV WKDW LQIODWLRQ WDUJHWLQJ KDVEHHQ DGRSWHG E\
.RXQWULHV WKDW RQ DYHUDJH KDYH H[KLELWHG KLJKHU OHYHOV RI LQIODWLRQ WKDQ LQGXVWULDO QRQ
LQIODWLRQWDUJHWHUVKDYH,QGHHGPRVWHPHUJLQJ.RXQWULHVKDYHDGRSWHGLQIODWLRQWDUJHWLQJ
DVDGHYL.HWREULQJLQIODWLRQGRZQWRORZVLQJOHGLJLWOHYHOV$QGPRVWLQIODWLRQWDUJHWHUV
ERWKHPHUJLQJDQGLQGXVWULDO.RXQWU\WDUJHWHUVPDGHPDMRUSURJUHVVLQUHGX.LQJLQIODWLRQ
7KHUH DUHRQO\D IHZ ODUJHSRVLWLYHRU QHJDWLYH .RUUHODWLRQVDPRQJYDULDEOHVRWKHUWKDQLQIODWLRQ
WDUJHWLQJ([.HSWLRQVDUH WKHWKUHHPHDVXUHVRI .HQWUDOEDQN LQGHSHQGHQ.HZKL.KDUH KLJKO\DQGSRVLWLYHO\
.RUUHODWHGZLWKHD.KRWKHU
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
9/48
GXULQJRUVKRUWO\EHIRUHRUDIWHUDGRSWLQJLQIODWLRQWDUJHWLQJ%HUQDQNHHWDO&RUERHW
DO&RXQWULHVWKDWWUDGHUHODWLYHO\PRUHEH.DXVHWKH\DUHPRUHRSHQDQGRUVPDOOHU
WKDQ QRQLQIODWLRQ WDUJHWHUV DUH VLJQLIL.DQWO\PRUH OLNHO\ WRDGRSW LQIODWLRQ WDUJHWLQJ D
UHVXOWWKDWUHIOH.WVWKDWPRVWODUJHLQGXVWULDO.RXQWULHVDUHQRWLQIODWLRQWDUJHWHUV
,QIODWLRQ WDUJHWLQJ LV QHJDWLYHO\ DVVR.LDWHG ZLWK WKH ILV.DO VXUSOXV UDWLR WR *'3
DJDLQDUHVXOWWKDWIROORZVIURPKDYLQJD.RQWUROJURXSRIQRQLQIODWLRQWDUJHWHUV.RPSULVHG
E\ LQGXVWULDO .RXQWULHV WKDW RQ DYHUDJH VKRZ D VWURQJHU ILV.DO SRVLWLRQ WKDQ WKH
LQIODWLRQ WDUJHWHUV +RZHYHU WKLV DVVR.LDWLRQ GRHV QRW DWWDLQ .RQYHQWLRQDO VLJQLIL.DQ.H
OHYHOV
,QIODWLRQ WDUJHWLQJ LV SRVLWLYHO\ EXW QRW VLJQLIL.DQWO\ DVVR.LDWHG WR WKH ZLGWK RI
H[.KDQJH UDWH EDQG $V H[SH.WHG LQIODWLRQ WDUJHWLQJ LV QHJDWLYHO\ DQG VLJQLIL.DQWO\
DVVR.LDWHG WR WKH DGRSWLRQ RIPRQHWDU\ JURZWK WDUJHWV UHIOH.WLQJ WKH LQ.RPSDWLELOLW\ RI
KDYLQJVLPXOWDQHRXVO\LQSOD.HH[SOL.LWPRQHWDU\DQGLQIODWLRQWDUJHWV
)LQDOO\OHWV.RQVLGHUWKHLQIOXHQ.HRI.HQWUDOEDQNLQGHSHQGHQ.H7KHOLNHOLKRRGRI
KDYLQJ LQIODWLRQ WDUJHWLQJ LQ SOD.H LV SRVLWLYHO\ DVVR.LDWHG WR .HQWUDOEDQN IRUPDO
LQGHSHQGHQ.H DOWKRXJK LWV .RHIIL.LHQW LV QRW VLJQLIL.DQW DW .RQYHQWLRQDO OHYHOV DQG
VLJQLIL.DQWO\ WR .HQWUDOEDQN LQVWUXPHQW LQGHSHQGHQ.H +RZHYHU LQIODWLRQ WDUJHWLQJ LV
QHJDWLYHO\ DQG VLJQLIL.DQWO\ DVVR.LDWHG ZLWK .HQWUDOEDQN JRDO LQGHSHQGHQ.H 7KH ODWWHU
UHVXOWVXJJHVWVWKDW.HQWUDOEDQNVZKHQWKH\KDYHWKHIUHHGRPWRGHWHUPLQHWKHLUWDUJHW
OHYHOVDUH PRUH OLNHO\ WRGRVRXQGHUH[.KDQJH UDWH RUPRQHWDU\JURZWK DQ.KRUV WKDQ
ZKHQWKH\DGRSWLQIODWLRQWDUJHWV+HQ.HLQIODWLRQWDUJHWLQJLVDVVR.LDWHGZLWKVXUUHQGHULQJ
JRDOLQGHSHQGHQ.HWRJRYHUQPHQWV:HUHSRUWLQ.ROXPQDUHJUHVVLRQWKDWGURSVWKHOHVV
VLJQLIL.DQWYDULDEOHV$OOILYHUHPDLQLQJUHJUHVVRUVEH.RPHPRUHVLJQLIL.DQW
7KH SUH.HHGLQJ UHVXOWV DUH EDVHG RQ WKH IXOO .RXQWU\ VDPSOH WKDW LQ.OXGHV WKUHH
.RXQWULHV ZLWK YHU\ KLJK LQIODWLRQ UDWHV LQ WKH HDUO\ V %UD]LO 3HUX DQG 3RODQG
'URSSLQJ WKH WKUHH ODWWHU IURP WKH VDPSOH \LHOGV UHJUHVVLRQ UHVXOWV IRU D UHVWUL.WHG
.RXQWU\ VDPSOH UHSRUWHG LQ.ROXPQV DQG RI7DEOH &RHIIL.LHQW VLJQVYDOXHV DQG
VLJQLIL.DQ.HOHYHOV.KDQJHOLWWOHIURPWKRVHUHSRUWHGIRUWKHIXOOVDPSOH+HQ.HRXUUHVXOWV
DUHUREXVWWRH[.OXVLRQRIKLJKLQIODWLRQRXWOLHUV
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
10/48
3HUIRUPLQJRQHPRUHUREXVWQHVVWHVWZHGURS&RORPELDRUHDDQG3HUXIURPWKH
VDPSOH $VGLV.XVVHG LQ IRRWQRWH WKHUHDUH VRPH TXHVWLRQVDERXWZKHWKHU WKHVH WKUHH
.RXQWULHV VKRXOG EH .ODVVLILHG DV LQIODWLRQ WDUJHWHUV 7KH UHJUHVVLRQ UHVXOWV IRU WKLV
DOWHUQDWLYH.RXQWU\VDPSOH UHSRUWHGLQ.ROXPQVDQG RI7DEOH DOVR.RQILUPRXU
IXOOVDPSOHUHVXOWV
,VLQIODWLRQWDUJHWLQJDVX..HVVVWRU\"
2Q RQH KDQG LW KDV EHHQ DUJXHG WKDW VWUX.WXUDO IHDWXUHV DQG PD.URH.RQRPL.
SHUIRUPDQ.HRILQIODWLRQWDUJHWLQJ.RXQWULHVGLIIHULQVRPHUHVSH.WVIURPWKRVHRI.RXQWULHV
WKDWKDYHDGRSWHGDOWHUQDWLYHPRQHWDU\IUDPHZRUNVLH%HUQDQNHHWDO&H..KHWWL
DQG(KUPDQQ6.KDH.KWHU6WRQHDQG=HOPHU&RUERDQG6.KPLGW+HEEHO
&RUER/DQGHUUHW.KHDQG6.KPLGW+HEEHO2QWKHRWKHUKDQGLWKDVEHHQDUJXHGWKDW
VRPH LQGXVWULDO.RXQWULHVZLWKRXW IRUPDO LQIODWLRQWDUJHWV OLNH*HUPDQ\EHIRUH WKHHXUR
6ZLW]HUODQGEHIRUHDQG WKH86SXUVXH DPRQHWDU\SROL.\ WKDW LV.ORVHWRH[SOL.LW
LQIODWLRQ WDUJHWLQJ 0LVKNLQ E :RXOG WKLV LPSO\ WKDW LQIODWLRQ WDUJHWLQJ LV
REVHUYDWLRQDOO\ HTXLYDOHQW WR DOWHUQDWLYHPRQHWDU\ IUDPHZRUNV UHJDUGLQJ WKH .RQGX.W RI
SROL.\DQGLWVUHVXOWV":KDWGRHVDUHYLHZRIWKHUH.HQWHPSLUL.DOOLWHUDWXUHWHOODERXWWKLV
LVVXH"
:H IR.XV RQ WKLV TXHVWLRQE\ .RQGX.WLQJ DEULHI UHYLHZRI UH.HQW HPSLUL.DOZRUN
HYDOXDWLQJDGH.DGHRIZRUOGZLGHH[SHULHQ.HZLWKLQIODWLRQWDUJHWLQJ)DUIURPDWWHPSWLQJD
.RPSUHKHQVLYH HYDOXDWLRQ ZH LGHQWLI\ D IHZ VHOH.WLYH DQG WHQWDWLYH .RQ.OXVLRQV WKDW
SURYLGHDSDUWLDOYLHZRIWKHUHODWLYHVX..HVVRILQIODWLRQWDUJHWLQJ
&HQWUDOEDQN LQGHSHQGHQH LVPXWXDOO\ UHLQIRUHGZLWK LQIODWLRQ WDUJHWLQJ&RXQWU\
H[SHULHQ.H GXULQJ WKH V VXJJHVWV WKDW H[WHQGLQJ ODUJHU GHJUHHV RI LQGHSHQGHQ.H WR
.HQWUDO EDQNV RIWHQ VXSSRUWV DGRSWLRQ RI LQIODWLRQ WDUJHWLQJ ,Q VRPH .RXQWULHV LQIODWLRQ
WDUJHWLQJZDVDGRSWHGDIWHUJUDQWLQJIRUPDODQGLQVWUXPHQWLQGHSHQGHQ.HWR.HQWUDOEDQNV
DVZDV WKH .DVH LQ 1HZ=HDODQG DQG &KLOH ,Q RWKHU .RXQWULHV OLNH WKH8 LQVWUXPHQW
$PHWKRGRORJL.DOSRLQWLVLQRUGHU:HVKRXOGNHHSLQPLQGWKDWLQIHUHQ.HVDERXWLQIODWLRQWDUJHWHUVVX..HVV
DUHVWLOOKLJKO\WHQWDWLYHLQYLHZRIWKHDPELJXLWLHVVXUURXQGLQJWKHVDPSOHGHILQLWLRQVIRULQIODWLRQWDUJHWLQJ
.RXQWULHVWKHSRVVLEOHV\VWHPL.HTXLYDOHQ.HRIVRPHIHDWXUHVRILQIODWLRQWDUJHWLQJZLWKWKRVHRIDOWHUQDWLYH
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
11/48
LQGHSHQGHQ.H.DPHDIWHU LQIODWLRQWDUJHWLQJ7KHSRVLWLYHDVVR.LDWLRQKDVEHHQ.RQILUPHG
E\ RXU HPSLUL.DO UHVXOWV IRU IRUPDO DQG LQVWUXPHQW LQGHSHQGHQ.H EXW QRW IRU JRDO
LQGHSHQGHQ.H
&RPPXQLDWLRQ WUDQVSDUHQ\ DQG DRXQWDELOLW\ DUH PXWXDOO\ UHLQIRUHG ZLWK
LQIODWLRQ WDUJHWLQJ $GRSWLRQ RI LQIODWLRQ WDUJHWLQJ KDV W\SL.DOO\ EHHQ IROORZHG DQG
VRPHWLPHVSUH.HGHGE\PDMRULPSURYHPHQWLQ.HQWUDOEDQN.RPPXQL.DWLRQZLWKWKHSXEOL.
DQGWKHPDUNHWV DQG VLJQLIL.DQWXSJUDGH LQPRQHWDU\ SROL.\ WUDQVSDUHQ.\0RVW LQIODWLRQ
WDUJHWHUVKDYHVWDUWHGSXEOL.DWLRQRILQIODWLRQUHSRUWVPRQHWDU\SROL.\VWDWHPHQWV.HQWUDO
EDQN ERDUGPHHWLQJPLQXWHV .HQWUDOEDQNPRGHOV DQG LQIODWLRQ IRUH.DVWV VHH 7DEOH
7KLVPDMRU.RPPXQL.DWLRQHIIRUW .RQGX.WHGE\.HQWUDOEDQNVLVDUJXDEO\PRUH LPSRUWDQW
XQGHULQIODWLRQWDUJHWLQJ WKDQXQGHU DOWHUQDWLYHPRQHWDU\UHJLPHV.RQVLGHULQJ WKH.HQWUDO
UROH SOD\HG E\ SROL.\ .UHGLELOLW\ DQG LQIODWLRQ H[SH.WDWLRQV LQ DWWDLQLQJ LQIODWLRQ WDUJHWV
%HUQDQNHHWDO
,QIODWLRQ WDUJHWLQJKDVEHHQVXHVVIXO LQKHOSLQJRXQWULHVWRUHGXHLQIODWLRQEXW
QRWEHORZOHYHOVRILQGXVWULDOQRQLQIODWLRQWDUJHWHUV7KHHYLGHQ.HVKRZVWKDW.RXQWULHV
WKDWKDYHDGRSWHGLQIODWLRQWDUJHWLQJUHGX.HWKHLUORQJUXQLQIODWLRQEHORZWKHOHYHOVWKH\
ZRXOGKDYHDWWDLQHGLQWKHDEVHQ.HRILQIODWLRQWDUJHWLQJ+RZHYHULQIODWLRQWDUJHWLQJGRHV
QRW\LHOGLQIODWLRQEHORZWKHOHYHOVDWWDLQHGE\LQGXVWULDO.RXQWULHVWKDWKDYHDGRSWHGRWKHU
PRQHWDU\UHJLPHVDVVKRZQE\%HUQDQNHHWDODQGRXURZQUHVXOWVDERYH$GRSWLRQ
RI LQIODWLRQ WDUJHWLQJ LV W\SL.DOO\ DVVR.LDWHG WR D PDMRU XSIURQW LQYHVWPHQW LQ LQIODWLRQ
UHGX.WLRQ&RUERHWDO
,QIODWLRQWDUJHWLQJKDVEHHQWHVWHGIDYRUDEO\E\DGYHUVHVKRNV7KHVH[.HSWIRU
HPHUJLQJ.RXQWU\ ILQDQ.LDO .ULVHV LQ KDYH EHHQ YHU\ IDYRUDEOH WR WKH ZRUOG
H.RQRP\OHGE\WKHODUJHVWSRVW::,,86H[SDQVLRQ7KLVID.WKDVOHGPDQ\REVHUYHUVWR
DUJXHWKDWLQIODWLRQWDUJHWLQJLVD\HWXQWHVWHGIUDPHZRUNDVQRPDMRUDGYHUVHVKR.NVKDYH
SXWVWUDLQRQWKHD.KLHYHPHQWRIORZDQGVWDEOHLQIODWLRQLQPDQ\LQIODWLRQWDUJHWHUV%XW
PRQHWDU\ UHJLPHV WKH UHOHYDQW .RXQWHUID.WXDO SRWHQWLDO VHOH.WLRQ ELDV DQGPXWXDO.DXVDWLRQ RI LQIODWLRQ
WDUJHWLQJDGRSWLRQDQG.RXQWU\SHUIRUPDQ.H
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
12/48
WKLVLVLQ.RUUH.W0DQ\LQIODWLRQWDUJHWHUVDUHVPDOORSHQH.RQRPLHVWKDWKDYHEHHQVXEMH.W
WR VHYHUH VKR.NV LQ WKH DIWHUPDWK RI WKH $VLDQ .ULVLV DV RSSRVHG WR WKH ODUJH
LQGXVWULDOQRQLQIODWLRQWDUJHWHUVWKDWKDYHEHHQXQDIIH.WHGE\WKHVHVKR.NV7KH.RPELQHG
DGYHUVH ILQDQ.LDODQG WHUPVRIWUDGHVKR.NV VXIIHUHGE\$XVWUDOLD&KLOH ,VUDHODQG1HZ
=HDODQGDPRQJRWKHU LQIODWLRQ WDUJHWHUVKDYH OHG WRPDMRUH[.KDQJH UDWHGHYDOXDWLRQ LQ
WKHVH .RXQWULHV WHVWLQJ VLJQLIL.DQWO\ WKH DWWDLQPHQW RI WKHLU LQIODWLRQ WDUJHWV 7KH\
ZHDWKHUHG WKLV VWRUP VX..HVVIXOO\ E\ UH.RUGLQJ OLWWOH SDVVWKURXJK IURP GHYDOXDWLRQ WR
LQIODWLRQ 7KH RLO SUL.H VKR.N UHSUHVHQWHG WKH VH.RQG WHVW IRU RLOLPSRUWLQJ
LQIODWLRQWDUJHWHUVLQ.OXGLQJWKHDERYHPHQWLRQHG.RXQWULHVDQG%UD]LOWKH&]H.K5HSXEOL.
DQG 3RODQG DPRQJ RWKHUV 6LJQLIL.DQW LQ.UHDVHV LQ LPSRUWHG LQIODWLRQ WKURXJK ERWK
HQHUJ\ SUL.HV DQG H[.KDQJHUDWH GHYDOXDWLRQ .RXOG SXW LQ MHRSDUG\ WKHVH .RXQWULHV
WDUJHWV+RZHYHU .XUUHQW .DVXDOHYLGHQ.H IURPPDQ\ LQIODWLRQ WDUJHWHUV VXJJHVWV WKDW WKH
HIIH.WVRIWKHRLOVKR.NRQ.RUHLQIODWLRQKDYHEHHQPLQRUZKLOHRQO\WHPSRUDU\DQGPRGHVW
LQ.UHDVHVLQKHDGOLQHLQIODWLRQDUHREVHUYHG
,QIODWLRQ WDUJHWLQJ KDV KHOSHG LQ UHGXLQJ VDULILH UDWLRV DQG RXWSXW YRODWLOLW\ LQ
RXQWULHV WKDWKDYH DGRSWHG LQIODWLRQ WDUJHWLQJWR OHYHOVORVH WRWKRVH LQ LQGXVWULDO
QRQLQIODWLRQWDUJHWHUV%HUQDQNHHWDOIRXQGWKDWLQIODWLRQWDUJHWLQJGLGQRWPDNH
GLVLQIODWLRQ OHVV .RVWO\ DV VD.ULIL.H UDWLRV DQG 3KLOOLSV .XUYHV KDG QRW EHHQ DOWHUHG E\
LQIODWLRQ WDUJHWLQJ +RZHYHU EDVHG RQ QHZ HYLGHQ.H IRU D ODUJHU VDPSOH RI LQIODWLRQ
WDUJHWHUVDQGQRQLQIODWLRQWDUJHWHUV&RUERHWDO.RQ.OXGHWKDWVD.ULIL.HUDWLRVKDYH
GH.OLQHG LQ HPHUJLQJ .RXQWULHV DIWHU DGRSWLRQ RI LQIODWLRQ WDUJHWLQJ 7KH\ DOVR ILQG WKDW
RXWSXW YRODWLOLW\ KDV IDOOHQ LQERWKHPHUJLQJDQG LQGXVWULDOL]HG H.RQRPLHV DIWHUDGRSWLQJ
LQIODWLRQWDUJHWLQJWROHYHOVWKDWDUHVLPLODUWRDQGVRPHWLPHVORZHUWKDQWKRVHREVHUYHG
LQLQGXVWULDO.RXQWULHVWKDWGRQRWWDUJHWLQIODWLRQ
,QIODWLRQ WDUJHWLQJ PD\ KDYH KHOSHG LQ EULQJLQJ GRZQ DQG JXLGLQJ LQIODWLRQ
H[SHWDWLRQV DQG GHDOLQJ EHWWHU ZLWK LQIODWLRQ VKRNV $..RUGLQJ WR $OPHLGD DQG
*RRGKDUW DQG%HUQDQNHHWDO LQIODWLRQWDUJHWLQJKDVQRWUHGX.HG LQIODWLRQ
H[SH.WDWLRQV TXL.NO\ RQO\ JUDGXDOO\ RYHU WLPH&RUER HW DO UHSRUW WKDW LQIODWLRQ
IRUH.DVWHUURUVEDVHGRQ.RXQWU\9$5PRGHOV KDYH IDOOHQ .RQVLVWHQWO\ZLWKDGRSWLRQRI
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
13/48
LQIODWLRQ WDUJHWLQJ WRZDUG WKH ORZ OHYHOV SUHYDOHQW LQ QRQWDUJHWLQJ LQGXVWULDO .RXQWULHV
7KH\DOVRILQGWKDWLQIODWLRQSHUVLVWHQ.HKDVGH.OLQHGVWURQJO\DPRQJWDUJHWHUVGXULQJWKH
VVXJJHVWLQJWKDWLQIODWLRQWDUJHWVKDYHVWUHQJWKHQHGIRUZDUGORRNLQJH[SH.WDWLRQVRQ
LQIODWLRQKHQ.HZHDNHQLQJWKHZHLJKWRISDVWLQIODWLRQ
0RQHWDU\ SROL\ XQGHU LQIODWLRQ WDUJHWLQJ LV IOH[LEOH LQDVPXK LW UHVSRQGV
V\PPHWULDOO\WRLQIODWLRQVKRNVDQGGRHVDRPPRGDWHWHPSRUDU\LQIODWLRQVKRNV
WKDWGRQRWDIIHWWKHPHGLXPWHUPDWWDLQPHQWRIWKHWDUJHW,QIODWLRQWDUJHWHUVDUHQRW
LQIODWLRQQXWWHUVDSKUDVHGXHWRLQJEH.DXVHWKH\W\SL.DOO\UHD.WV\PPHWUL.DOO\
WRSRVLWLYHDQGQHJDWLYHVKR.NVSXUVXHGLVLQIODWLRQJUDGXDOO\DQGUHD.WWRWHPSRUDU\RXWSXW
VKR.NV(YLGHQ.HE\&H..KHWWLDQG(KUPDQQ VKRZV WKDWRXWSXW GHYLDWLRQVKDYHD
SRVLWLYHZHLJKWLQDOOREMH.WLYHIXQ.WLRQVRILQIODWLRQWDUJHWHUV
0RQHWDU\ SROL\ LVPRUH OHDUO\ IRXVHGRQ LQIODWLRQ XQGHU LQIODWLRQ WDUJHWLQJDQG
PD\ KDYH EHHQ WRXJKHQHG E\ LQIODWLRQ WDUJHWLQJ&HQWUDOEDQN PDQGDWHV WR IR.XV RQ
SUL.H VWDELOLW\ WHQG WR EH VWUHQJWKHQHG E\ LQIODWLRQ WDUJHWLQJ %HUQDQNH HW DO
&H..KHWWL DQG (KUPDQQ KDYH SURYLGHG HYLGHQ.H WKDW .HQWUDOEDQN DYHUVLRQ WR
LQIODWLRQ VKR.NV UHODWLYH WR RXWSXW VKR.NV KDV EHHQ WRXJKHQHG ZLWK WKH DGRSWLRQ RI
LQIODWLRQWDUJHWLQJD.RQ.OXVLRQSDUWO\.RQILUPHGE\&RUERHWDO
:H .RQ.OXGH WKDW LQIODWLRQ WDUJHWLQJ KDV SURYHQ WR EH D YHU\ VX..HVVIXO QHZ
PRQHWDU\IUDPHZRUNERWKLQ.RPSDULVRQWRLQIODWLRQWDUJHWHUVSUH.HGLQJH[SHULHQ.HDQG
UHODWLYH WRDOWHUQDWLYHPRQHWDU\UHJLPHV DGRSWHG E\ D .RQWURO JURXSRIKLJKO\ VX..HVVIXO
LQGXVWULDO.RXQWULHVWKDWKDGLQSOD.HRWKHUPRQHWDU\DUUDQJHPHQWVGXULQJWKHV
(UURU%RRNPDUNQRWGHILQHG5HYLVLWLQJ2SHUDWLRQDO'HVLJQ,VVXHV
2XUVXUYH\LQWKHSUHYLRXVVH.WLRQRXWOLQHVVRPHHOHPHQWVRIWKHRSHUDWLRQDOGHVLJQRI
LQIODWLRQ WDUJHWLQJ UHJLPHV +RZHYHU WKHUH DUH WKUHH GHVLJQ LVVXHV WKDW GHVHUYH GHWDLOHG
GLV.XVVLRQWKHLQWHUD.WLRQRIOHQJWKRIWKHWDUJHWKRUL]RQWKHZLGWKRIWKHWDUJHWUDQJHDQG
WKHXVHRIHV.DSH.ODXVHVLQIODWLRQWDUJHWLQJGXULQJWKHWUDQVLWLRQIURPKLJKWRORZLQIODWLRQ
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
14/48
ZKRVKRXOGVHWWKHPHGLXPWHUPLQIODWLRQWDUJHWDQGWKHUROHRIWKHH[.KDQJHUDWHDQG
RWKHUDVVHWSUL.HV:HGLV.XVVHD.KRIWKHVHLQWXUQ
,QWHUD.WLRQRIWKH7DUJHW+RUL]RQ:LGWKRI7DUJHW5DQJH(V.DSH&ODXVHVDQG&KRL.HRI
&RUH,QIODWLRQ7DUJHWV
$.HQWUDOSUREOHPIRUWKHGHVLJQRILQIODWLRQWDUJHWLQJUHJLPHVLVWKDWPRQHWDU\SROL.\
DIIH.WVWKHH.RQRP\DQGLQIODWLRQZLWKORQJODJV)RU.RXQWULHVWKDWDOUHDG\KDYHD.KLHYHGORZ
LQIODWLRQWKHODJVDUHHVWLPDWHGWREHTXLWHH[WHQGHGWZR\HDUVRUHYHQORQJHU
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
15/48
7KHH[DPSOHRI1HZ=HDODQGLQDOVRLOOXVWUDWHVWKDWWRRVKRUWDKRUL]RQDQGWRR
QDUURZDUDQJH.DQDOVRLQGX.HXQGHVLUHGRXWSXW IOX.WXDWLRQV$.RQVHTXHQ.HRIWKHRYHUO\
WLJKWPRQHWDU\SROL.\DWWKHHQGRIZDVWKDWLW.RQWULEXWHGWRWKHUH.HVVLRQLQDQG
ZKL.KZDVPDGHZRUVHE\ WKHQHJDWLYHWHUPVRIWUDGHVKR.NUHVXOWLQJ IURPWKH(DVW
$VLDQ.ULVLV
7RDYRLG.RQWUROODELOLW\DQGLQVWUXPHQWLQVWDELOLW\SUREOHPV LQDQ LQIODWLRQWDUJHWLQJ
UHJLPHWKHUHDUHIRXUURXWHVWKDW.HQWUDOEDQNV.DQWDNH)LUVWWKH\.DQEXLOGLQIRUPDOHV.DSH
.ODXVHV LQ WKHLU LQIODWLRQWDUJHWLQJ UHJLPH WRDOORZ IRU PLVVHVRI WKH LQIODWLRQ WDUJHW XQGHU
SDUWL.XODU.LU.XPVWDQ.HV6H.RQGWKH\.DQWDUJHW.RUHLQIODWLRQUDWKHUWKDQKHDGOLQHLQIODWLRQ
7KLUGWKH\.DQZLGHQWKHUDQJHRIWKHLQIODWLRQWDUJHW)RXUWKWKH\.DQVHWLQIODWLRQWDUJHWVIRU
VHYHUDO\HDUVDKHDG
2QO\1HZ=HDODQGKDVSXWIRUPDOHV.DSH.ODXVHVLQWRLWVLQIODWLRQWDUJHWLQJUHJLPHE\
DOORZLQJIRUPLVVHVRI WKHLQIODWLRQWDUJHW UDQJHZKHQ WKHUHDUH VLJQLIL.DQW.KDQJHV LQ WKH
WHUPVRIWUDGH.KDQJHVLQLQGLUH.WWD[HVWKDWDIIH.WWKHSUL.HOHYHODQGVXSSO\VKR.NVVX.KDVD
PDMRUOLYHVWR.NHSLGHPL.1RWHWKDWWKH1HZ=HDODQGHV.DSH.ODXVHVDUHGHVLJQHGWRGHDOZLWK
VXSSO\ VKR.NVRQO\EH.DXVHWKH\DUH WKHRQO\VKR.NVWKDW.DQEHUHDGLO\LGHQWLILHGDVEHLQJ
H[RJHQRXV$JJUHJDWHGHPDQGVKR.NVPD\EHH[RJHQRXVEXWDUHMXVWDVOLNHO\WREHLQGX.HG
E\PRQHWDU\SROL.\7KXV DOORZLQJ.HQWUDO EDQNV WRDSSHDO WRWKHP WRMXVWLI\PLVVHVRIDQ
LQIODWLRQWDUJHWZRXOGEHOLNHO\WRGHVWUR\.HQWUDOEDQN.UHGLELOLW\DQGXQGHUPLQHWKHLQIODWLRQ
WDUJHWLQJUHJLPH7KXVIRUPDOHV.DSH.ODXVHVDOWKRXJKSURYLGLQJVRPHLQ.UHDVHGIOH[LELOLW\
DUHRQO\DEOHWRSDUWLDOO\.RSHZLWKWKH.RQWUROODELOLW\DQGLQVWUXPHQWLQVWDELOLW\SUREOHPVIURP
WRRVKRUWDKRUL]RQDQGWRRQDUURZDWDUJHWUDQJH
$QDOWHUQDWLYHWRHV.DSH.ODXVHVDVDPHWKRGRI.RSLQJZLWKVXSSO\VKR.NVLVWRWDUJHWD
.RUHW\SH LQIODWLRQPHDVXUH ZKL.K H[.OXGHV LWHPV IURP WKH SUL.H LQGH[ VX.K DV IRRG DQG
HQHUJ\ WKDWDUHHVSH.LDOO\VXEMH.W WRVXSSO\VKR.NV8VHRID.RUHLQIODWLRQPHDVXUHKDVWKH
DGYDQWDJHRYHUHV.DSH.ODXVHVWKDWLWLQYROYHVQRGLV.UHWLRQDIWHUDVXSSO\VKR.NR..XUVZKL.K
PLJKW.DXVH WKHSXEOL. WRTXHVWLRQ WKH .HQWUDO EDQNVKRQHVW.RPPLWPHQW WRD.KLHYLQJWKH
LQIODWLRQWDUJHWV,QVWHDGZKL.KLWHPVDUHWREHH[.OXGHGIURPWKH.RQVWUX.WLRQRIWKHLQIODWLRQ
PHDVXUHDUHGH.LGHGRQH[DQWH,WLVSUREDEO\ZK\.RUHPHDVXUHVRILQIODWLRQDVWDUJHWVKDYH
EHHQXVHGPRUHZLGHO\WKDQHV.DSH.ODXVHV
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
16/48
+RZHYHU WDUJHWLQJRQ .RUH LQIODWLRQ PHDVXUHV DOVR VKDUHV ZLWK HV.DSH .ODXVHV WKH
GLVDGYDQWDJHWKDWLWRQO\GHDOVZLWKLQVWUXPHQWLQVWDELOLW\DQG.RQWUROODELOLW\SUREOHPVDULVLQJ
IURP VXSSO\ VKR.NV DQG QRW IURP DJJUHJDWH GHPDQG VKR.NV )XUWKHUPRUH .RUH LQIODWLRQ
PHDVXUHVKDYHWKHGLVDGYDQWDJHWKDWWKH\DUHQRWDVZHOOXQGHUVWRRGE\WKHSXEOL.DVKHDGOLQH
LQIODWLRQ PHDVXUHV WKXVPDNLQJ .RUH LQIODWLRQ WDUJHWV D VRPHZKDWZHDNHU .RPPXQL.DWLRQ
YHKL.OHWKDQKHDGOLQHLQIODWLRQWDUJHWV,QDGGLWLRQ.RUHLQIODWLRQPHDVXUHVH[.OXGHLWHPVWKDW
.RQVXPHUV.DUHD ORWDERXWSDUWL.XODUO\SRRUHURQHVIRUZKL.KIRRGDQGHQHUJ\IRUPDODUJHU
VKDUHRIWKHLUEXGJHW ,I WKHVHLWHPVDUHH[.OXGHGIURPWKHLQIODWLRQPHDVXUHD.HQWUDOEDQN
WDUJHWVWKH.HQWUDOEDQNPD\EHVXEMH.WHGWR.ULWL.LVPVWKDWLWGRHVQRW.DUHVXIIL.LHQWO\DERXW
SRRUHUPHPEHUVLQWKHVR.LHW\
:LGHQLQJ WKH WDUJHW UDQJH E\ LWVHOI LV DOVR QRW D VROXWLRQ WR .RQWUROODELOLW\ DQG
LQVWUXPHQWLQVWDELOLW\SUREOHPV(VWLPDWHVRIWKHLUUHGX.LEOHXQ.HUWDLQW\DURXQGDQLQIODWLRQ
WDUJHW ZLWK D RQH\HDU KRUL]RQ DUHRQ WKHRUGHU RI SHU.HQWDJH SRLQWV HJ +DOGDQH DQG
6DOPRQ DQG 6WHYHQV DQG'HEHOOH DOWKRXJK RYHU WLPH VX..HVVZLWK LQIODWLRQ
WDUJHWLQJPLJKWGH.UHDVHWKHYRODWLOLW\RILQIODWLRQH[SH.WDWLRQVDQGKHQ.HLQIODWLRQ&KRRVLQJ
VX.KDZLGHUDQJHRQWKHLQIODWLRQWDUJHWLVKLJKO\SUREOHPDWL.EH.DXVHLWZLOOOLNHO\.RQIXVH
WKHSXEOL.DERXWWKH.HQWUDOEDQNVLQWHQWLRQVDQGWKHUHVXOWLQJKLJK.HLOLQJIRU WKHUDQJHLV
OLNHO\WRPDNHWKH.RPPLWPHQWWRORZLQIODWLRQOHVV.OHDU.XWWKHUHE\UHGX.LQJWKH.UHGLELOLW\
RIPRQHWDU\SROL.\7KLVW\SHRISUREOHPD.WXDOO\R..XUUHGLQWKH8QLWHGLQJGRPLQ
ZKHQ LQIODWLRQ H[.HHGHG WKH WDUJHW PLGSRLQW RI E\ RYHU RQH SHU.HQWDJH SRLQW EXW
ZLWKRXWEUHD.KLQJWKH.HLOLQJWKXVJLYLQJWKH&KDQ.HOORURIWKH([.KHTXHU.RYHUWRUHVLVW
WKH%DQNRI(QJODQGVUH.RPPHQGDWLRQIRUWLJKWHQLQJRIPRQHWDU\SROL.\VHH%HUQDQNHHWDO
/HQJWKHQLQJ WKHWDUJHW KRUL]RQWR.RUUHVSRQGPRUH .ORVHO\ WR WKH ODJV RIPRQHWDU\
SROL.\ HIIH.WV RQ LQIODWLRQ ZRXOG VHHP WR EH WKH EHVW VROXWLRQ WR WKH .RQWUROODELOLW\ DQG
LQVWUXPHQWLQVWDELOLW\SUREOHPV,QGHHGJLYHQWKHSUREOHPVLWHQ.RXQWHUHGLQDQG
WKH5HVHUYH%DQNRI1HZ=HDODQGQRZHPSKDVL]HVDWDUJHWKRUL]RQRIVL[WRHLJKWTXDUWHUVLQ
WKHLUGLV.XVVLRQRIPRQHWDU\SROL.\VHH6KHUZLQDQG'UHZDQG2UU2WKHU.HQWUDO
EDQNV LQ.OXGLQJ WKH %DQN RI &DQDGD DQG WKH %DQN RI (QJODQG KDYH IRU D ORQJ WLPH
HPSKDVL]HGDWDUJHWKRUL]RQRI.ORVHUWRWZR\HDUVDQGWKLVKDVUH.HQWO\EH.RPHDIHDWXUHRI
WKH&KLOHDQWDUJHWLQJUHJLPH&HQWUDO%DQNRI&KLOHD
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
17/48
+RZHYHUDV6YHQVVRQKDVHPSKDVL]HGLI .HQWUDOEDQNVDUH.RQ.HUQHGDERXW
RXWSXWIOX.WXDWLRQVLHSXWDZHLJKWRQRXWSXWIOX.WXDWLRQVLQWKHLUORVVIXQ.WLRQWKHQWKH
LQIODWLRQ IRUH.DVW VKRXOG DSSURD.K WKH ORQJUXQ LQIODWLRQ WDUJHW JUDGXDOO\ RYHU WLPH 7KLV
LPSOLHVWKDWDKRUL]RQHYHQORQJHUWKDQWKHSROL.\ODJVPLJKWEHDSSURSULDWHIRUWKHLQIODWLRQ
WDUJHW 6X.K D ORQJ KRUL]RQ IRU WKH LQIODWLRQ WDUJHW PD\ .UHDWH SUREOHPV IRU DQ LQIODWLRQ
WDUJHWLQJUHJLPHEH.DXVHWKHORQJSHULRGEHIRUHWKHUHLVYHULIL.DWLRQRIKLWWLQJWKHWDUJHWPD\
ZHDNHQ.UHGLELOLW\SDUWL.XODUO\LI.UHGLELOLW\RIWKH.HQWUDOEDQNLVQRWKLJKWREHJLQZLWK2QH
SRVVLEOHZD\WRGHDOZLWKWKLVLVWRUH.RJQL]HWKDWWKHUHLVDQLQWHUD.WLRQEHWZHHQWKHRSWLPDO
KRUL]RQ DQGUDQJHIRU WKH WDUJHW WKH WDUJHW KRUL]RQ .RXOGEHNHSW UHODWLYHO\VKRUWVD\ WZR
\HDUV LI WKH WDUJHW UDQJH LV ZLGHQHG ,QGHHG ZLGHQLQJ RI WKH WDUJHW UDQJH IURP WR
SHU.HQWDJHSRLQWVLVQRZVHHQE\WKH5HVHUYH%DQNRI1HZ=HDODQGWRKDYHLPSURYHGWKH
LQIODWLRQWDUJHWLQJUHJLPHHYHQWKRXJKWKH%DQNZDVLQLWLDOO\QRWDVXSSRUWHURIWKLV.KDQJH
+RZHYHUZLGHQLQJWKHWDUJHWUDQJHLVQRWZLWKRXWLWVSUREOHPVDVPHQWLRQHGDERYHEH.DXVH
LW.DQDOVRLQ.UHDVH.RQIXVLRQDQGZHDNHQWKH.UHGLELOLW\RIWKHWDUJHWLQJUHJLPH
$QRWKHUZD\WRDOORZIRUORQJHUKRUL]RQVLVWKHXVHRIPXOWL\HDUDQQXDOWDUJHWVVRWKDW
WKHSDWKRIWKHLQIODWLRQWDUJHW.DQDSSURD.KWKHORQJUXQLQIODWLRQJRDOPRUHJUDGXDOO\7KLVLV
WKHVWUDWHJ\WKDWKDVUH.HQWO\EHHQDGRSWHGE\ERWK%UD]LODQG0H[L.R%DQNRI%UD]LO
DQG%DQNRI0H[L.R$QDOWHUQDWLYHDSSURD.KLVIRU WKH .HQWUDO EDQN WR.RQWLQXHWR
DQQRXQ.HRQO\RQHPHGLXPWHUPLQIODWLRQWDUJHWEXWWRDOVRDQQRXQ.HDORQJUXQWDUJHWZLWKD
VSH.LILHGGDWHDVWRZKHQLWVKRXOGEHD.KLHYHG$WKLUGDOWHUQDWLYHIRUWKH.HQWUDOEDQNLVWR
DQQRXQ.HRQO\RQHORQJWHUPLQIODWLRQWDUJHWDQGWRSXEOLVKLQIODWLRQIRUH.DVWVIRUIXWXUH\HDUV
WKXVGHV.ULELQJWKHH[SH.WHGSDWKRILQIODWLRQWRZDUGWKHORQJUXQWDUJHW7KLVLVWKHDSSURD.K
WKDW KDV EHHQ UH.HQWO\ DGRSWHG E\ &KLOH &HQWUDO %DQN RI &KLOH E IROORZLQJ RWKHU
LQGXVWULDO.RXQWULHV
,QGHHGRQHRIWKHDXWKRUVRIWKLVSDSHUKDVDUJXHGHOVHZKHUH0LVKNLQDWKDWDSRLQWWDUJHWIRULQIODWLRQPD\EHPRUHGHVLUDEOHWKDQDWDUJHWUDQJHEH.DXVHHGJHVRIWKHWDUJHWUDQJH.DQWDNHRQDOLIHRIWKHLURZQ:LWK
WDUJHWUDQJHVLQSOD.HSROLWL.LDQVILQDQ.LDOPDUNHWVDQGWKHSXEOL.RIWHQIR.XVRQZKHWKHULQIODWLRQLVMXVWRXWVLGH
RU LQVLGH WKHHGJH RID UDQJH UDWKHU WKDQRQWKHPDJQLWXGHRI WKHGHYLDWLRQIURP WKHPLGSRLQW$VGLV.XVVHG
DERYHWKHRSSRVLWHSUREOHPR..XUUHGLQWKH8QLWHGLQJGRPLQZKHQLQIODWLRQH[.HHGHGWKHWDUJHWPLGSRLQW
E\RYHURQHSHU.HQWDJHSRLQWEXWZLWKRXWEUHD.KLQJWKHXSSHUEDQG7KHSUREOHPZLWKWRRPX.KIR.XVRQWKH
HGJHVRI WKHUDQJHLV WKDWLW .DQOHDGWKH.HQWUDOEDQNWR.RQ.HQWUDWHWRRPX.KRQNHHSLQJWKHLQIODWLRQUDWHMXVW
ZLWKLQWKHEDQGVUDWKHUWKDQWU\LQJWRKLWWKHPLGSRLQWRIWKHUDQJH,WLVGLIIL.XOWWRLPDJLQHDVHQVLEOHREMH.WLYH
IXQ.WLRQIRUSROL.\PDNHUVWKDWZRXOGMXVWLI\VX.KDV\PPHWUL.UHD.WLRQVWRLQIODWLRQUDWHVMXVWLQVLGHDQGRXWVLGH
WKHEDQGV
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
18/48
,QIODWLRQ7DUJHWLQJ'XULQJWKH7UDQVLWLRQIURP+LJKWR/RZ,QIODWLRQ
:KHQLQIODWLRQLVLQLWLDOO\ZHOODERYHWKHORQJUXQLQIODWLRQJRDO.RQVLVWHQWZLWKSUL.H
VWDELOLW\ WKH .UHGLELOLW\RIWKH .HQWUDOEDQN LVOLNHO\ WREHORZ ,QDGGLWLRQDW LQLWLDOO\KLJK
LQIODWLRQUDWHVVD\RYHULQIODWLRQLVQRWHDVLO\.RQWUROOHGE\WKHPRQHWDU\DXWKRULWLHV
7KXV LQIODWLRQ WDUJHWLQJ WR D.KLHYH D GLVLQIODWLRQ IURP D KLJK LQIODWLRQ UDWH ID.HV H[WUD
.KDOOHQJHV
2QHZD\ WRGHDOZLWK WKH.RPSOL.DWLRQVDULVLQJIURPDQ LQLWLDOO\KLJKLQIODWLRQLVWR
SKDVHLQLQIODWLRQWDUJHWLQJJUDGXDOO\PDNLQJLWPRUHIRUPDOZLWKLQ.UHDVLQJVX..HVVRQWKH
GLVLQIODWLRQIURQWDVVXJJHVWHGE\0DVVRQHWDO7KLVLVH[D.WO\WKHVWUDWHJ\WKDWKDV
EHHQSXUVXHGE\HPHUJLQJPDUNHW.RXQWULHVZLWKLQLWLDOO\KLJKLQIODWLRQ0LVKNLQEDQG
0LVKNLQDQG6DYDVWDQR)RUH[DPSOHZKHQ&KLOHDGRSWHGLQIODWLRQWDUJHWLQJLQ
ZLWK LQIODWLRQ H[.HHGLQJ WKH LQIODWLRQ WDUJHWZDV WUHDWHGPRUH DVDQRIIL.LDO LQIODWLRQ
SURMH.WLRQUDWKHUWKDQDVDIRUPDOKDUGWDUJHW0RUDQGpDQG6.KPLGW+HEEHO
0RUDQGp 2YHU WLPH WKH .HQWUDO EDQN SXW JUHDWHU HPSKDVLV RQ WKH SUL.H VWDELOLW\
REMH.WLYHDQGZLWK LWV VX..HVV LQERWK GLVLQIODWLQJDQGPHHWLQJ LWV LQIODWLRQ REMH.WLYHV WKH
SXEOL.EHJDQWRLQWHUSUHWWKRVHREMH.WLYHVDVKDUGWDUJHWVIRUZKL.KWKH.HQWUDOEDQN.RXOGEH
PDGH D..RXQWDEOH )LQDOO\ LQ 0D\ RI WKH &HQWUDO %DQNRI &KLOH EHJDQ WR LVVXH DQ
LQIODWLRQUHSRUWW\SHGR.XPHQWZLWKDOOWKHEHOOVDQGZKLVWOHVVHHQLQVLPLODUGR.XPHQWVLQ
LQGXVWULDOL]HG .RXQWULHV )RU H[DPSOH WKLV 0RQHWDU\ 3ROL.\ 5HSRUW QRW RQO\ RXWOLQHV
GHYHORSPHQWVRQWKHLQIODWLRQIURQWDQGKRZWKH%DQNLQWHQGVWRD.KLHYHLWVLQIODWLRQWDUJHW
EXW DOVR LQ.OXGHV LQIODWLRQ DQGRXWSXW IRUH.DVWV DORQJZLWK .RQILGHQ.H LQWHUYDOV IRU WKHVH
IRUH.DVWVGLVSOD\HGLQWKHIDPRXVIDQ.KDUWVSLRQHHUHGE\WKH%DQNRI(QJODQG
0H[L.R DOVR KDV EHHQ IROORZLQJ D JUDGXDO DSSURD.K WR LPSOHPHQWLQJ LQIODWLRQ
WDUJHWLQJ6HQLRURIIL.LDOVRI WKH%DQNRI0H[L.RUH.HQWO\.KDUD.WHUL]HG0H[L.RVPRQHWDU\
SROL.\ IUDPHZRUN DV EHLQJ LQ D WUDQVLWLRQ SHULRG WRZDUGV D .OHDU.XW LQIODWLRQ WDUJHWLQJ
V.KHPH &DUVWHQVDQG:HUQHU )RU D QXPEHU RI\HDUV0H[L.RKDVPDGHSXEOL.DQ
H[SOL.LW LQIODWLRQ REMH.WLYH DW WKH WLPH WKH0LQLVWHU RI )LQDQ.H VXEPLWWHG WR&RQJUHVV WKH
JRYHUQPHQWVH.RQRPL.SURJUDPIRUWKHIROORZLQJ\HDU7KH%DQNRI0H[L.RKDVLQ.UHDVLQJO\
SXWDQHPSKDVLVRQWKHLQIODWLRQJRDODVWKH.HQWUDOREMH.WLYHRILWVPRQHWDU\SROL.\,Q
,WKDVHYHQEHHQDIHDWXUHRIWKHDGRSWLRQVWUDWHJ\RILQGXVWULDOL]HG.RXQWULHVZKRDGRSWHGLQIODWLRQWDUJHWLQJ
ZKHQLQIODWLRQKDVEHHQDWUDWHVOHVVWKDQ%HUQDQNHHWDO
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
19/48
DIWHUDQQXDO LQIODWLRQDWIHOOEHORZWKHWDUJHWIRUWKHILUVW WLPHWKH.HQWUDOEDQN
DQQRXQ.HGWKHLQIODWLRQWDUJHWIRUWKH\HDUEHIRUHWKH0LQLVWU\RI)LQDQ.HVXEPLWWHG
WR&RQJUHVVWKHH.RQRPL.SURJUDPIRUWKH\HDU6WDUWLQJLQ$SULORIWKH%DQNRI0H[L.R
KDV EHHQ LVVXLQJ DQ,QIODWLRQ 5HSRUW ZKL.K GR.XPHQWV ZKDW KDV EHHQ KDSSHQLQJ RQ WKH
LQIODWLRQIURQWDQGKRZWKH%DQNRI0H[L.RLQWHQGVWRD.KLHYHLWVLQIODWLRQREMH.WLYHVEXWGRHV
QRWSURYLGHLQIODWLRQDQGRXWSXWIRUH.DVWV,QLWVWKLUG,QIODWLRQ5HSRUWSXEOLVKHGLQ2.WREHU
WKH%DQNRI0H[L.RDQQRXQ.HGPXOWL\HDUDQQXDOWDUJHWVZKL.K.RQYHUJHWRDORQJUXQ
WDUJHWRIWREHUHD.KHGE\'H.HPEHU
:HDN.UHGLELOLW\ZKHQ LQIODWLRQLV LQLWLDOO\KLJKPDNHVLWPRUHOLNHO\WKDWWKHSXEOL.
DQG PDUNHWV PD\ QRW EHOLHYH WKDW WKH .HQWUDO EDQN LV VHULRXV DERXW KLWWLQJ LWV WDUJHWV LI
YHULIL.DWLRQKDVWRZDLWIRUPRUHWKDQRQH\HDULQWKHIXWXUH7KLVSUREOHPPD\PDNHLWYHU\
GLIIL.XOW IRU D .HQWUDO EDQN DGRSWLQJ LQIODWLRQ WDUJHWLQJ ZKHQ LQIODWLRQ LV KLJK WR .KRRVH
LQIODWLRQWDUJHWVZLWKKRUL]RQVORQJHUWKDQD\HDU$VZHKDYHVHHQLQWKHSUHYLRXVVXEVH.WLRQ
WKLV SUHVHQWV WKH .HQWUDO EDQNZLWK D GLOHPPD EH.DXVH WKH ODJV IURP PRQHWDU\ SROL.\ WR
LQIODWLRQ DUH OLNHO\ WR EHORQJHU WKDQDRQH\HDU KRUL]RQ$VROXWLRQ WR WKLV GLOHPPD LV WR
VSH.LI\DSDWKIRUWKHLQIODWLRQWDUJHWZLWKPXOWL\HDUWDUJHWVZKL.KLVZKDWWKH.HQWUDOEDQNV
RI%UD]LO&]H.K5HSXEOL.0H[L.RDQG3RODQGKDYHGRQHVLQ.H+RZHYHUVSH.LI\LQJD
PXOWL\HDUSDWK IRU WKHDQQXDOLQIODWLRQ WDUJHWV.UHDWH WKHGDQJHUWKDWHYHQWKRXJKD .HQWUDO
EDQNLVPDNLQJJRRGSURJUHVVWRZDUGLWVORQJUXQLQIODWLRQJRDOJLYHQWKHJUHDWHUXQ.HUWDLQW\
RILQIODWLRQ.RQWURODWKLJKLQIODWLRQUDWHVLWPLJKWVWLOOGHYLDWHVXEVWDQWLDOO\IURPWKHPXOWL\HDU
SDWK7KLVSUREOHP.DQKHOSH[SODLQZK\WKH&KLOHDQ.HQWUDOEDQN.KRVHQRWWRVSH.LI\PXOWL
\HDULQIODWLRQWDUJHWVZKHQLWHPEDUNHGRQLWVLQIODWLRQWDUJHWLQJUHJLPHLQ
:KHQWUDQVLWLQJIURPKLJKWRORZLQIODWLRQWKHUHDSSHDUVWREHDVWURQJHUUDWLRQDOHIRU
DGRSWLQJDZLGHUUDQJHIRULQIODWLRQWDUJHWVWRUHIOH.WWKHVXEVWDQWLDOXQ.HUWDLQW\RILQIODWLRQ
.RQWUROZKHQLQIODWLRQLVLQLWLDOO\KLJK+RZHYHUDVGLV.XVVHGLQWKHSUHYLRXVVXEVH.WLRQD
ZLGHUDQJHIRUWKHLQIODWLRQWDUJHW .DQ OHDG WR.UHGLELOLW\SUREOHPVEH.DXVH WKHJRYHUQPHQW
PD\ EHZLOOLQJ WRDGYR.DWH WKDW DOO LVZHOORQWKH LQIODWLRQIURQWZKHQ WKH LQIODWLRQ UDWH LV
VXEVWDQWLDOO\DERYHWKHPLGSRLQWRIWKHWDUJHWUDQJHEXWLVVWLOOEHORZWKH.HLOLQJRIWKHUDQJH
$SRLQW WDUJHW RQ WKH RWKHUKDQGPDNHV WKLV EHKDYLRURQ WKH SDUW RI WKH JRYHUQPHQW OHVV
OLNHO\ 0DNLQJ VXUH WKDW WKH JRYHUQPHQW GRHV QRW ZHDNHQ WKH .RPPLWPHQW WR ORZHULQJ
LQIODWLRQLVHVSH.LDOO\LPSRUWDQWIRULQIODWLRQWDUJHWLQJUHJLPHVZKHQLQIODWLRQLVKLJKEH.DXVH
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
20/48
.UHGLELOLW\ LV VR PX.K PRUH SUH.DULRXV LQ WKHVH VLWXDWLRQV 7KHUH LV WKHUHIRUH D VWURQJHU
DUJXPHQWIRU.KRRVLQJDSRLQWWDUJHWRYHUDWDUJHWUDQJHLQDQLQIODWLRQWDUJHWLQJUHJLPHGXULQJ
WKHWUDQVLWLRQ IURPKLJK WRORZ LQIODWLRQ ,QWHUHVWLQJO\ WKH&HQWUDO%DQNRI&KLOHVZLW.KHG
IURPWDUJHWUDQJHVWRSRLQWLQIODWLRQWDUJHWVLQLQWKHSUR.HVVRIKDUGHQLQJLWVLQIODWLRQ
WDUJHWLQJUHJLPH
,PSHUIH.W .UHGLELOLW\GXULQJ WUDQVLWLRQIURPPRGHUDWHO\KLJK WR ORZLQIODWLRQLPSOLHV
WKDWLQIODWLRQH[SH.WDWLRQVDUHPRUHJHDUHGWRKLJKHUSDVWLQIODWLRQWKDQWRORZHURIIL.LDO
LQIODWLRQWDUJHWV+HQ.HLQIODWLRQLQHUWLDLVSRWHQWLDOO\ODUJHUDQGUDSLGGLVLQIODWLRQLVSRWHQWLDOO\
PRUH.RVWO\ LQWUDQVLWLRQ WRZDUG ORZ LQIODWLRQ(YLGHQ.HIRU&KLOH EDVHGRQ.RXQWHUID.WXDO
VLPXODWLRQV .DUULHGRXWE\&RUERHWDO DQG0RUDQGp VXJJHVW WKDWDTXL.NHU
SD.HRIGLVLQIODWLRQ WRZDUG WKH ORQJWHUPWDUJHWZRXOGKDYH LQYROYHGD ODUJHU RXWSXW
VD.ULIL.H
$V LV DUJXHG LQ 0LVKNLQ . DQ HPSKDVLV RQ DYRLGLQJ XQGHUVKRRWV RI WKH
LQIODWLRQWDUJHWLVOLNHO\WRLPSURYHWKHSHUIRUPDQ.HRILQIODWLRQWDUJHWLQJUHJLPHV:KHQ
LQIODWLRQDSSURD.KHVOHYHOVWKDWDUH.RQVLVWHQWZLWKSUL.HVWDELOLW\DV\PPHWUL.DSSURD.KWR
LQIODWLRQ WDUJHWLQJ LQZKL.KXQGHUVKRRWVDUH WREHDYRLGHG MXVWDVVWRQJO\DV RYHUVKRRWV
PDNHVRXWSXWGH.OLQHVDQGGHIODWLRQOHVVOLNHO\DQGLWDOVRLQGL.DWHVWKDWWKH.HQWUDOEDQN
DSSURSULDWHO\ .DUHV DERXW RXWSXW IOX.WXDWLRQV KHOSLQJ WR PDLQWDLQ VXSSRUW IRU LWV
LQGHSHQGHQ.H+RZHYHUZHDN.UHGLELOLW\ZKHQLQIODWLRQWDUJHWLQJLVDGRSWHGDWUHODWLYHO\
KLJK LQIODWLRQ UDWHVZKL.K LV RIWHQ WKH VLWXDWLRQ IRU HPHUJLQJPDUNHW .RXQWULHVDGRSWLQJ
LQIODWLRQ WDUJHWLQJ SURYLGHV DQ DUJXPHQW IRU ZK\ DQ DV\PPHWUL. DSSURD.K WR LQIODWLRQ
WDUJHWLQJ DW KLJKHU LQIODWLRQ UDWHV PD\ KDYH VRPH DGYDQWDJHV 2YHUVKRRWV RI LQIODWLRQ
WDUJHWVZKHQLQIODWLRQLVVWLOOKLJKPD\.UHDWHIHDUVWKDWPRQHWDU\SROL.\LVJRLQJED.NWRLWV
ROGKLJKLQIODWLRQZD\VDQGRYHUVKRRWV.RXOGWKXVKDYHGHYDVWDWLQJHIIH.WVRQ.HQWUDOEDQN
.UHGLELOLW\ $W KLJK LQIODWLRQ WKH .HQWUDO EDQN PD\ WKHUHIRUH ZDQW WR EH SDUWL.XODUO\
DJJUHVVLYHLILWWKLQNVWKHUHLVDSRVVLELOLW\WKDWLQIODWLRQZLOORYHUVKRRWWKHWDUJHW7KLVELDV
WRSUHYHQWLQJRYHUVKRRWVRIWKHWDUJHWQH.HVVDULO\LPSOLHVWKDWWKH.HQWUDOEDQNVSUHIHUHQ.HV
ZRXOG EH VRPHZKDW DV\PPHWUL.ZLWK RYHUVKRRWV UH.HLYLQJ D JUHDWHU ZHLJKW LQ WKH ORVV
IXQ.WLRQWKDQXQGHUVKRRWV)RUH[DPSOHWKHEHKDYLRURIWKH%DQNRI,VUDHOLQUH.HQW\HDUV
VHHPVWREH.RQVLVWHQWZLWKDV\PPHWUL.SUHIHUHQ.HVRIWKLVW\SH
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
21/48
+RZHYHU DV\PPHWUL. SUHIHUHQ.HV.DQ EH WDNHQWRR IDU,I WKH.HQWUDO EDQN LV QRW
VXIIL.LHQWO\.RQ.HUQHGDERXWXQGHUVKRRWVRIWKHWDUJHWVLW.DQSURGX.HJUHDWHUXQ.HUWDLQW\
DERXW LQIODWLRQ ZKL.K LQWHUIHUHV ZLWK SULYDWH VH.WRU SODQQLQJ $OVR QRW DYRLGLQJ
XQGHUVKRRWVRIWKHWDUJHW.DQOHDGWRVKDUSGH.OLQHVLQDJJUHJDWHRXWSXWZKL.K.DQQRWRQO\
EHKDUPIXOWR WKH H.RQRP\EXW .DQDOVROHDGWRGH.UHDVHGSXEOL. VXSSRUW IRU WKH .HQWUDO
EDQN DQG WKH LQIODWLRQ WDUJHWLQJ UHJLPH (YHQ LI DV\PPHWUL. SUHIHUHQ.HV ZKL.K VWUHVV
DYRLGLQJRYHUVKRRWVPRUHWKDQXQGHUVKRRWVRILQIODWLRQWDUJHWVPDNHVHQVHDWKLJKLQIODWLRQ
UDWHV RQ.H WKH WUDQVLWLRQ IURP KLJK WR ORZ LQIODWLRQ LV .RPSOHWH WKH\ DUH QR ORQJHU
DSSURSULDWH
:KR6KRXOG6HWWKH0HGLXP7HUP,QIODWLRQ7DUJHW"
'HEHOOHDQG)LV.KHU DQG)LV.KHUPDNH WKHXVHIXOGLVWLQ.WLRQEHWZHHQ
JRDOLQGHSHQGHQ.HLQZKL.KWKH.HQWUDOEDQNVHWVWKHJRDOVRIPRQHWDU\SROL.\DQGLQVWUXPHQW
LQGHSHQGHQ.H LQZKL.K WKH.HQWUDO EDQN .RQWUROVPRQHWDU\SROL.\ LQVWUXPHQWV ,QVWUXPHQW
LQGHSHQGHQ.H IRU .HQWUDO EDQNV LV VXSSRUWHGE\ WKH QHHG WR LQVXODWH WKH .HQWUDO EDQN IURP
VKRUWUXQSROLWL.DOSUHVVXUHVWKDWPD\OHDGLWWRSXUVXHWLPHLQ.RQVLVWHQWH[SDQVLRQDU\SROL.\
WKDWSURGX.HVEDGORQJUXQRXW.RPHV+RZHYHUWKHDUJXPHQWWKDWD.HQWUDOEDQNVORQJUXQ
SUHIHUHQ.HVVKRXOG.RLQ.LGHZLWKVR.LHW\VSUHIHUHQ.HVVXJJHVWVWKDWD.HQWUDOEDQNVKRXOGEH
JRDOGHSHQGHQW+DYLQJWKHJRYHUQPHQWGH.LGHRQWKHORQJUXQLQIODWLRQWDUJHWIRUWKH.HQWUDO
EDQNWKXVUH.HLYHVDORWRIVXSSRUW
:KHWKHUWKHJRYHUQPHQWVKRXOGVHWWKHPHGLXPWHUPLQIODWLRQWDUJHWUDWKHUWKDQWKH
.HQWUDOEDQNLVDWUL.NLHUTXHVWLRQ,ILQIODWLRQLV.XUUHQWO\ORZWKHPHGLXPWHUPWDUJHWLVOLNHO\
WREHWKHVDPHDVWKHORQJUXQWDUJHWDQGVRWKHUHLVQR.RQIOL.WEHWZHHQWKHPPDNLQJLWHDVLHU
WRPDNHWKH.DVHWKDWWKHJRYHUQPHQWVKRXOGVHWWKHPHGLXPWHUPWDUJHWDVLWGRHVLQPDQ\
LQIODWLRQWDUJHWLQJUHJLPHV+RZHYHULILQIODWLRQLV.XUUHQWO\IDUIURPWKHORQJUXQWDUJHWZKR
VHWVWKHPHGLXPWHUPWDUJHWLVPRUH.RPSOL.DWHG7KHOHQJWKRIWKHODJVIURPPRQHWDU\SROL.\
WRLQIODWLRQLVD WH.KQL.DOLVVXHWKDWWKH.HQWUDOEDQNLVIDUPRUHTXDOLILHGWRGHWHUPLQHWKDQ
SROLWL.LDQV 7KXV KRZ ORQJ LW VKRXOG WDNH IRU LQIODWLRQ WR UHWXUQ WR WKH ORQJUXQ WDUJHW
QH.HVVDULO\ UHTXLUHVMXGJHPHQWDERXW WKHVH ODJVZKL.KVKRXOGEHLQVXODWHGIURPVKRUWWHUP
SROLWL.DOSUHVVXUHLIWLPHLQ.RQVLVWHQWSROL.LHVDUHWREHDYRLGHG7KLVDUJXHVIRUKDYLQJWKH
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
22/48
.HQWUDOEDQNVHWWKHPHGLXPWHUPLQIODWLRQWDUJHWEH.DXVHKRZTXL.NO\LWDSSURD.KHVWKHORQJ
UXQWDUJHWUHIOH.WVWKHODJVRIPRQHWDU\SROL.\HIIH.WVRQLQIODWLRQ
2QWKHRWKHUKDQGDV6YHQVVRQKDVVKRZQSUHIHUHQ.HVRQWKHZHLJKWJLYHQWR
PLQLPL]LQJ RXWSXW IOX.WXDWLRQV UHODWLYH WR LQIODWLRQ IOX.WXDWLRQVDIIH.WV WKH VSHHG DWZKL.K
LQIODWLRQ VKRXOG EH DGMXVWHG WRZDUG WKH ORQJUXQ JRDO 7KXV LI WKH JRYHUQPHQWV ORQJUXQ
SUHIHUHQ.HVDUHWREHUHIOH.WHGLQPRQHWDU\SROL.\WKHUHLVDQDUJXPHQWIRUWKHJRYHUQPHQW
KDYLQJ D UROH LQ VHWWLQJ WKH PHGLXPWHUP WDUJHW EH.DXVH WKLV GHWHUPLQHV WKH VSHHG RI
.RQYHUJHQ.HRILQIODWLRQWRWKHORQJUXQWDUJHW
&OHDUO\ WKHUH LV D WUDGHRIIRQ ZKR VKRXOG VHWPHGLXPWHUPLQIODWLRQ WDUJHWVZKHQ
LQIODWLRQLVIDUIURPWKHORQJUXQJRDO7KHDUJXPHQWIRULQVWUXPHQWLQGHSHQGHQ.HVXJJHVWV
WKDW WKH .HQWUDO EDQN VKRXOG VHW WKH PHGLXPWHUP WDUJHW ZKLOH WKH DUJXPHQW IRU JRDO
GHSHQGHQ.HVXJJHVWVWKDWWKHJRYHUQPHQWVKRXOGVHWWKHPHGLXPWHUPWDUJHW)RULQGXVWULDO
.RXQWULHVWKLVPD\QRWEHWKDWPX.KRIDGLOHPPDEH.DXVHPHGLXPWHUPWDUJHWVDQGORQJUXQ
WDUJHWV DUH OLNHO\ WR EH TXLWH .ORVH %XW IRU .RXQWULHV LQ WKH WUDQVLWLRQ IURP KLJK WR ORZ
LQIODWLRQ LW LV IDU OHVV REYLRXV WKDW WKH JRYHUQPHQW VKRXOG GHWHUPLQH WKH PHGLXPWHUP
LQIODWLRQWDUJHW
7KH5ROHRIWKH([.KDQJH5DWHDQG2WKHU$VVHW3UL.HV
0RYHPHQWV RI WKH H[.KDQJH UDWH DUH .OHDUO\ D PDMRU .RQ.HUQ RI .HQWUDO EDQNV LQ
LQIODWLRQWDUJHWLQJDVZHOODVQRQLQIODWLRQWDUJHWLQJ.RXQWULHV&KDQJHVLQWKHH[.KDQJHUDWH
.DQKDYH DPDMRU LPSD.WRQ LQIODWLRQ SDUWL.XODUO\LQVPDOO RSHQH.RQRPLHV)RU H[DPSOH
GHSUH.LDWLRQVOHDGWRDULVHLQLQIODWLRQDVDUHVXOWRIWKHSDVVWKURXJKIURPKLJKHULPSRUWSUL.HV
DQGJUHDWHUGHPDQGIRUH[SRUWVSDUWL.XODUO\LQDVPDOORSHQH.RQRP\,QDGGLWLRQWKHSXEOL.
DQGSROLWL.LDQVSD\DWWHQWLRQWRWKHH[.KDQJHUDWHDQGWKLVSXWVSUHVVXUHRQWKH.HQWUDOEDQNWR
DOWHUPRQHWDU\SROL.\$QDSSUH.LDWLRQRIWKHGRPHVWL..XUUHQ.\.DQPDNHGRPHVWL.EXVLQHVV
XQ.RPSHWLWLYHZKLOHDGHSUH.LDWLRQLVRIWHQVHHQDVDVLJQDORIIDLOXUHRIWKH.HQWUDOEDQNDV
KDVUH.HQWO\EHHQWKH.DVHIRUWKH(XURSHDQ&HQWUDO%DQNHYHQLIWKLVYLHZLVDQXQIDLURQH
(PHUJLQJ PDUNHW .RXQWULHV TXLWH .RUUH.WO\ KDYH DQ HYHQ JUHDWHU .RQ.HUQ DERXW
H[.KDQJH UDWHPRYHPHQWV1RW RQO\ .DQD UHDO DSSUH.LDWLRQPDNH GRPHVWL. LQGXVWULHV OHVV
.RPSHWLWLYHEXWLW.DQOHDGWRODUJH.XUUHQWD..RXQWGHIL.LWVZKL.K.DQPDNHWKH.RXQWU\PRUH
YXOQHUDEOH WR.XUUHQ.\ .ULVLVLI .DSLWDO LQIORZV WXUQ WRRXWIORZV'HSUH.LDWLRQV LQHPHUJLQJ
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
23/48
PDUNHW.RXQWULHVDUHSDUWL.XODUO\GDQJHURXVEH.DXVHWKH\.DQWULJJHUDILQDQ.LDO.ULVLVDORQJ
WKH OLQHV VXJJHVWHG LQ 0LVKNLQ D D 7KHVH .RXQWULHV KDYHPX.K RI WKHLU GHEW
GHQRPLQDWHGLQIRUHLJQ.XUUHQ.\DQGZKHQWKH.XUUHQ.\GHSUH.LDWHVWKLVLQ.UHDVHVWKHGHEW
EXUGHQRIGRPHVWL.ILUPV6LQ.HDVVHWVDUHW\SL.DOO\GHQRPLQDWHGLQGRPHVWL..XUUHQ.\DQGVR
GRQRWLQ.UHDVHLQYDOXHWKHUHLVDUHVXOWLQJGH.OLQHLQQHWZRUWK7KLVGHWHULRUDWLRQLQEDODQ.H
VKHHWVWKHQLQ.UHDVHVDGYHUVHVHOH.WLRQDQGPRUDOKD]DUGSUREOHPVZKL.KOHDGVWRILQDQ.LDO
LQVWDELOLW\DQGDVKDUSGH.OLQHLQLQYHVWPHQWDQGH.RQRPL.D.WLYLW\7KLVPH.KDQLVPH[SODLQV
ZK\WKH.XUUHQ.\.ULVHVLQ0H[L.RLQDQG(DVW$VLDLQSXVKHGWKHVH.RXQWULHV
LQWRIXOOIOHGJHGILQDQ.LDO.ULVHVZKL.KKDGGHYDVWDWLQJHIIH.WVRQWKHLUH.RQRPLHV
7KH ID.W WKDW H[.KDQJH UDWH IOX.WXDWLRQVDUHDPDMRU .RQ.HUQLQVRPDQ\ .RXQWULHV
UDLVHVWKHGDQJHUWKDWPRQHWDU\SROL.\HYHQXQGHUDQLQIODWLRQWDUJHWLQJUHJLPHPD\SXWWRR
PX.KIR.XVRQOLPLWLQJH[.KDQJHUDWHPRYHPHQWV7KHILUVWSUREOHPZLWKDIR.XVRQOLPLWLQJ
H[.KDQJH UDWH PRYHPHQWV LV WKDW LW UXQV WKH ULVNRI WUDQVIRUPLQJ WKH H[.KDQJH UDWH LQWR D
QRPLQDO DQ.KRU WKDW WDNHVSUH.HGHQ.HRYHU WKH LQIODWLRQ WDUJHW)RU H[DPSOH DVSDUWRI LWV
LQIODWLRQWDUJHWLQJUHJLPH,VUDHOKDGDQLQWHUPHGLDWHWDUJHWRIDTXLWHQDUURZH[.KDQJHUDWH
EDQG DURXQG D .UDZOLQJSHJZKRVHUDWH RI.UDZOZDV VHW LQD IRUZDUGORRNLQJPDQQHUE\
GHULYLQJ LW IURP WKH LQIODWLRQ WDUJHW IRU WKH .RPLQJ \HDU (YHQ WKRXJK WKH%DQNRI ,VUDHO
GRZQSOD\HGWKHH[.KDQJHUDWHWDUJHWUHODWLYHWRWKHLQIODWLRQWDUJHWRYHUWLPHLWGLGVORZWKH
%DQNV HIIRUWV WR ZLQ VXSSRUW IRU GLVLQIODWLRQ DQG ORZHULQJ RI WKH LQIODWLRQ WDUJHWV VHH
%HUQDQNHHWDO
7KHVH.RQGSUREOHPIURPDIR.XVRQ OLPLWLQJH[.KDQJHUDWHIOX.WXDWLRQV LV WKDW WKH
LPSD.WRI.KDQJHVLQH[.KDQJHUDWHVRQLQIODWLRQDQGRXWSXW.DQGLIIHUVXEVWDQWLDOO\GHSHQGLQJ
RQWKHQDWXUHRIWKHVKR.NWKDW.DXVHVWKHH[.KDQJHUDWHPRYHPHQW'LIIHUHQWPRQHWDU\SROL.\
UHVSRQVHV DUH WKXV QHHGHGGHSHQGLQJRQ WKH QDWXUH RI WKH VKR.N ,I WKH GRPHVWL..XUUHQ.\
GHSUH.LDWHVEH.DXVHRI DSXUHSRUWIROLR VKR.N LQIODWLRQLV OLNHO\ WRULVHDQG WKHDSSURSULDWH
UHVSRQVH WRNHHSLQIODWLRQXQGHU.RQWURO LVIRU WKHPRQHWDU\DXWKRULWLHVWRWLJKWHQPRQHWDU\
SROL.\DQGUDLVHLQWHUHVWUDWHV,IWKHGHSUH.LDWLRQR..XUVLQDQHPHUJLQJPDUNHW.RXQWU\ZKL.K
KDVDVXEVWDQWLDODPRXQWRIIRUHLJQGHQRPLQDWHGGHEWWLJKWHQLQJPRQHWDU\SROL.\WRSUHYHQWD
VKDUSGHSUH.LDWLRQPD\EHHYHQPRUHQH.HVVDU\WRDYRLGILQDQ.LDOLQVWDELOLW\IRUWKHUHDVRQV
PHQWLRQHGDERYH2QWKHRWKHUKDQGLIWKHH[.KDQJHUDWHGHSUH.LDWLRQR..XUVEH.DXVHRIUHDO
VKR.NVWKHLPSD.WLVOHVVOLNHO\WREHLQIODWLRQDU\DQGDGLIIHUHQWPRQHWDU\SROL.\UHVSRQVHLV
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
24/48
ZDUUDQWHG EXW HYHQ KHUH LWGHSHQGV RQ WKH QDWXUH RI WKH VKR.N$QHJDWLYH WHUPVRIWUDGH
VKR.NZKL.KORZHUVGHPDQGIRUH[SRUWVUHGX.HVDJJUHJDWHGHPDQGDQGLVWKXVOLNHO\WREH
GHIODWLRQDU\ ,Q WKLV VLWXDWLRQWKH.RUUH.W LQWHUHVW UDWH UHVSRQVH LV WRORZHULQWHUHVWUDWHV WR
.RXQWHUD.WWKHGURSLQDJJUHJDWHGHPDQGDQGQRWWRUDLVHLQWHUHVWUDWHV,IWKHQHJDWLYHWHUPV
RIWUDGHVKR.NLQVWHDGLVGXHWRDULVHLQLPSRUWSUL.HVWKHUHLVDQHJDWLYHLQ.RPHHIIH.WZKL.K
.RXOG EH RIIVHW E\ ORZHULQJ LQWHUHVW UDWHV %XW WKHUH LV DOVR D GLUH.W LQIODWLRQDU\ HIIH.W
SDUWL.XODUO\LIWKHUHLVKLJKLQGH[DWLRQDQGSDVVWKURXJKWKDWPLJKWVXJJHVWWKDWLQWHUHVWUDWHV
VKRXOGULVHLQRUGHUWRSUHYHQWVH.RQGURXQGHIIH.WV
2QHJUDSKL.H[DPSOHRIZKHUHDIR.XVRQOLPLWLQJH[.KDQJHUDWHIOX.WXDWLRQVKHOSHG
LQGX.H WKH ZURQJ SROL.\ UHVSRQVH R..XUUHG LQ 1HZ =HDODQG LQ DQG $V ZDV
PHQWLRQHGDERYHWKHVKRUWKRUL]RQIRU WKH LQIODWLRQ WDUJHW LQ1HZ=HDODQGOHG WKH5HVHUYH
%DQNWRIR.XVRQWKHH[.KDQJHUDWHDVDQLQGL.DWRURIWKHPRQHWDU\SROL.\VWDQ.HEH.DXVHRI
WKHGLUH.WLPSD.WRIH[.KDQJHUDWHPRYHPHQWVRQLQIODWLRQ%\HDUO\WKH5HVHUYH%DQN
LQVWLWXWLRQDOL]HGWKLVIR.XVE\DGRSWLQJDVLWVSULPDU\LQGL.DWRURIPRQHWDU\SROL.\D0RQHWDU\
&RQGLWLRQV,QGH[0&,VLPLODUWRWKDWGHYHORSHGE\WKH%DQNRI&DQDGD7KHLGHDEHKLQGWKH
0&,ZKL.KLVDZHLJKWHGDYHUDJHRIWKHH[.KDQJHUDWHDQGDVKRUWWHUPLQWHUHVWUDWHLVWKDW
ERWKLQWHUHVWUDWHVDQGH[.KDQJHUDWHVRQDYHUDJHKDYHRIIVHWWLQJLPSD.WVRQLQIODWLRQRQWKH
DVVXPSWLRQWKDWSRUWIROLRVKR.NVGRPLQDWHH[.KDQJHUDWHPRYHPHQWV:LWKWKHQHJDWLYHWHUPV
RIWUDGHVKR.NLQWKHDGRSWLRQRIWKH0&,LQOHGWRDTXHVWLRQDEOHPRQHWDU\SROL.\
UHVSRQVH WRWKH(DVW$VLDQ.ULVLV:LWKGHSUH.LDWLRQVHWWLQJLQDIWHUWKH.ULVLVEHJDQ LQ-XO\
DIWHUWKHGHYDOXDWLRQRIWKH7KDLEDKWWKH0&,EHJDQDVKDUSGH.OLQHLQGL.DWLQJWKDWWKH
5HVHUYH%DQNQHHGHGWRUDLVHLQWHUHVWUDWHVZKL.KLWGLGE\RYHUEDVLVSRLQWV7KHUHVXOW
ZDVYHU\WLJKWPRQHWDU\SROL.\ZLWKWKHRYHUQLJKW.DVKUDWHH[.HHGLQJE\-XQHRI
%H.DXVH WKH GHSUH.LDWLRQ ZDV GXH WR D VXEVWDQWLDO QHJDWLYH WHUPV RI WUDGH VKR.N ZKL.K
GH.UHDVHG DJJUHJDWH GHPDQG WKH WLJKWHQLQJ RIPRQHWDU\ SROL.\ QRW VXUSULVLQJO\ OHG WR D
UH.HVVLRQDQG DQXQGHUVKRRWRI WKH LQIODWLRQ WDUJHW UDQJHZLWKD.WXDOGHIODWLRQR..XUULQJLQ
7KH5HVHUYH%DQNRI1HZ=HDODQGGLGHYHQWXDOO\UHYHUVHLWV.RXUVHVKDUSO\ORZHULQJ
LQWHUHVW UDWHV EHJLQQLQJ LQ -XO\ DIWHU WKH H.RQRP\ KDG HQWHUHG D UH.HVVLRQ ,W DOVR
12
7KHWHUPVRIWUDGHVKR.NKRZHYHUZDVQRWWKHRQO\QHJDWLYHVKR.NWKH1HZ=HDODQGH.RQRP\ID.HGGXULQJ
WKDW SHULRG ,WV IDUP VH.WRU H[SHULHQ.HG D VHYHUH GURXJKWZKL.K DOVR KXUW WKH H.RQRP\ 7KXV DPLVWDNH LQ
PRQHWDU\SROL.\ZDVQRWWKHRQO\VRXU.HRIWKHUH.HVVLRQ%DGOX.NSOD\HGDUROHWRR6HH'UHZDQG2UU
DQG%UDVK
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
25/48
UH.RJQL]HGWKHSUREOHPVZLWKXVLQJDQ0&,DVDQLQGL.DWRURIPRQHWDU\SROL.\DQGDEDQGRQHG
LW LQ1RZ WKH5HVHUYH%DQN RSHUDWHVPRQHWDU\SROL.\ LQDPRUH .RQYHQWLRQDOZD\
XVLQJWKHRYHUQLJKW.DVKUDWHDVLWVSROL.\LQVWUXPHQWZLWKIDUOHVVHPSKDVLVRQWKHH[.KDQJH
UDWHLQLWVPRQHWDU\SROL.\GH.LVLRQV
$QRWKHU H[DPSOHLQZKHUHH[.KDQJHUDWH IOX.WXDWLRQVZHUHOLPLWHGZDV WKH .DVHRI
&KLOHLQ$WWKDWWLPH&KLOHVLQIODWLRQWDUJHWLQJUHJLPHDOVRLQ.OXGHGDIR.XVRQOLPLWLQJ
H[.KDQJHUDWHIOX.WXDWLRQVE\KDYLQJDQH[.KDQJHUDWHEDQGZLWKD.UDZOLQJSHJZKL.KZDV
ORRVHO\WLHGWRODJJHGGRPHVWL.LQIODWLRQ,QUHVSRQVHWRWKH.RPELQHGILQDQ.LDODQGWHUPVRI
WUDGHVKR.NGXHWRWKH$VLDQ.ULVLVWKH&HQWUDO%DQNRI&KLOHDGRSWHGDVWULQJHQWPRQHWDU\
SROL.\DQGDGHIHQVHRIWKHSHVRZLWKDQDUURZLQJRIWKHH[.KDQJHUDWHEDQGDQGLQWHUYHQWLRQ
LQWKHIRUHLJQH[.KDQJHPDUNHW:KHQWKHH.RQRP\HQWHUHGLQWRDPLOGUH.HVVLRQLQODWH
WKHWLJKWPRQHWDU\SROL.\ZDVUHYHUVHGZKHQLQWHUHVWUDWHVZHUHORZHUHGDQGWKHSHVRZDV
DOORZHGWRGH.OLQH7KHH[.KDQJHUDWHEDQGZDVDEROLVKHGLQ6HSWHPEHUDQGWKHSHVR
IORDWVIUHHO\VLQ.HWKHQ
7KH .RQWUDVW RI WKH H[SHULHQ.H RI 1HZ =HDODQG DQG&KLOH GXULQJ WKLVSHULRG ZLWK
$XVWUDOLDDQRWKHUVPDOORSHQH.RQRP\ZLWKDQLQIODWLRQWDUJHWLQJUHJLPHLVUHYHDOLQJ3ULRU
WR DGRSWLRQ RI LWV LQIODWLRQWDUJHWLQJ UHJLPH LQ WKH 5HVHUYH %DQN RI $XVWUDOLD KDG
DGRSWHGDSROL.\RIDOORZLQJWKHH[.KDQJHUDWHWRIOX.WXDWHZLWKRXWLQWHUIHUHQ.HSDUWL.XODUO\LI
WKHVRXU.HRIWKHH[.KDQJHUDWH.KDQJHZDVDUHDOVKR.NOLNHDWHUPVRIWUDGHVKR.N7KXV
ZKHQID.HGZLWKWKHGHYDOXDWLRQLQ7KDLODQGLQ-XO\WKH5HVHUYH%DQNUH.RJQL]HGWKDWLW
ZRXOGID.HDVXEVWDQWLDOQHJDWLYHWHUPVRIWUDGHVKR.NEH.DXVHRIWKHODUJH.RPSRQHQWRILWV
IRUHLJQWUDGH.RQGX.WHGZLWKWKH$VLDQUHJLRQDQGWKDWLWVKRXOGQRWILJKWWKHGHSUH.LDWLRQRI
WKH $XVWUDOLDQ GROODU WKDW ZRXOG LQHYLWDEO\ UHVXOW 7KXV LQ .RQWUDVW WR 1HZ =HDODQG LW
LPPHGLDWHO\ORZHUHGWKHRYHUQLJKW.DVKUDWHE\EDVLVSRLQWVWRDQGNHSWLWQHDUDWWKLV
OHYHOXQWLOWKHHQGRIZKHQLWZDVORZHUHGDJDLQE\DQRWKHUEDVLVSRLQWV
,QGHHG WKH DGRSWLRQ RI WKH LQIODWLRQWDUJHWLQJ UHJLPHSUREDEO\ KHOSHG WKH5HVHUYH
%DQNRI$XVWUDOLDWREHHYHQPRUHDJJUHVVLYHLQLWVHDVLQJLQUHVSRQVHWRWKH(DVW$VLDQ.ULVLV
DQGKHOSVH[SODLQZK\WKHLUUHVSRQVHZDVVRUDSLG7KH5HVHUYH%DQNZDVDEOHWRPDNH.OHDU
WKDWHDVLQJZDVH[D.WO\ZKDWLQIODWLRQWDUJHWLQJ.DOOHGIRULQRUGHUWRSUHYHQWDQXQGHUVKRRWLQJ
13
6HH0.)DUODQHDQG6WHYHQV
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
26/48
RI WKH WDUJHW VR WKDW WKH HDVLQJ ZDV XQOLNHO\ WR KDYH DQ DGYHUVH HIIH.W RQ LQIODWLRQ
H[SH.WDWLRQV7KHRXW.RPHRIWKH5HVHUYH%DQNVSROL.\D.WLRQVZDVH[WUHPHO\IDYRUDEOH,Q
.RQWUDVWWR1HZ=HDODQGDQG&KLOHUHDORXWSXWJURZWKUHPDLQHGVWURQJWKURXJKRXWWKLVSHULRG
)XUWKHUPRUH WKHUH ZHUH QR QHJDWLYH .RQVHTXHQ.HV IRU LQIODWLRQ GHVSLWH WKH VXEVWDQWLDO
GHSUH.LDWLRQ RI WKH $XVWUDOLDQ GROODU DJDLQVW WKH 86 GROODU E\ .ORVH WR LQIODWLRQ
UHPDLQHGXQGHU.RQWUROD.WXDOO\IDOOLQJGXULQJWKLVSHULRGWRHQGXSVOLJKWO\XQGHUWKHWDUJHW
UDQJHRIWR
7KHGLV.XVVLRQDERYHWKHUHIRUHVXJJHVWVWKDWWDUJHWLQJRQDQH[.KDQJHUDWHLVOLNHO\WR
ZRUVHQWKHSHUIRUPDQ.HRIPRQHWDU\SROL.\7KLVKRZHYHUGRHVQRWLPSO\WKDW.HQWUDOEDQNV
VKRXOG SD\ QR DWWHQWLRQ WR WKH H[.KDQJH UDWH $Q LPSRUWDQW WUDQVPLVVLRQPH.KDQLVP IRU
PRQHWDU\ SROL.\ LV WKH H[.KDQJH UDWH DQG LWV OHYHO KDV LPSRUWDQW HIIH.WV RQ LQIODWLRQ DQG
DJJUHJDWH GHPDQG GHSHQGLQJ RQ WKH QDWXUH RI WKH VKR.NV SDUWL.XODUO\ LQ VPDOO RSHQ
H.RQRPLHV7KHUHIRUHWKH.RQWURORILQIODWLRQDQGDJJUHJDWHGHPDQGUHTXLUHVWKHPRQLWRULQJ
RIH[.KDQJHUDWHGHYHORSPHQWVDQGWKHID.WRULQJRIWKHPLQWRGH.LVLRQVRQVHWWLQJPRQHWDU\
SROL.\ LQVWUXPHQWV $GHSUH.LDWLRQRI WKH H[.KDQJH UDWH GXHWRSRUWIROLR VKR.NVUHTXLUHVD
WLJKWHQLQJ RIPRQHWDU\SROL.\ LQRUGHU WRNHHS LQIODWLRQ IURP ULVLQJ2Q WKHRWKHUKDQG D
GHSUH.LDWLRQ IURP D QHJDWLYH WHUPV RI WUDGH VKR.N ZKHQ GXH WR IDOOLQJ H[SRUW SUL.HV
UHTXLUHVDGLIIHUHQWUHVSRQVHDQHDVLQJRIPRQHWDU\SROL.\DV$XVWUDOLDGLGLQ
7KHUHLVDQRWKHUUHDVRQIRU.HQWUDOEDQNVQRWWRSXUVXHDEHQLJQQHJOH.WRIH[.KDQJH
UDWHVDQLVVXHWKDWLVSDUWL.XODUO\UHOHYDQWIRUHPHUJLQJPDUNHW.RXQWULHVDVLVHPSKDVL]HGLQ
0LVKNLQ E DQG 0LVKNLQ DQG 6DYDVWDQR )RU WKH UHDVRQV GLV.XVVHG HDUOLHU
HPHUJLQJPDUNHW .RXQWULHVZLWK ODUJHIRUHLJQGHQRPLQDWHGGHEWPD\ QRW EHDEOH WRDIIRUG
VKDUS GHSUH.LDWLRQV RI WKHLU .XUUHQ.LHV ZKL.K .DQ GHVWUR\ EDODQ.H VKHHWV DQG WULJJHU D
ILQDQ.LDO .ULVLV &HQWUDO EDQNV LQ WKHVH .RXQWULHV PD\ WKXV KDYH WR VPRRWK H[.HVVLYH
H[.KDQJH UDWH IOX.WXDWLRQV EXW ZRXOGQRW LQYROYH DWWHPSWLQJ WRSUHYHQW WKH H[.KDQJH UDWH
IURPUHD.KLQJLWVPDUNHWGHWHUPLQHGOHYHORYHUORQJHUKRUL]RQV([.KDQJHUDWHVPRRWKLQJYLD
IRUHLJQH[.KDQJHPDUNHWLQWHUYHQWLRQVPLJKWEHQH.HVVDU\DWWLPHVEH.DXVHRIWKHSRVVLELOLW\
WKDWVX.KLQWHUYHQWLRQV.DQSUHYHQWG\QDPL.VLQWKHPL.URVWUX.WXUHRIWKLVPDUNHWWKDWPD\
OHDGWRH[.KDQJHUDWHIOX.WXDWLRQVWKDWDUHGLYRU.HGIURPIXQGDPHQWDOV+RZHYHU.RQWLQXLQJ
H[.KDQJH PDUNHW LQWHUYHQWLRQV SDUWL.XODUO\ XQVWHULOL]HG RQHV DUH OLNHO\ WR EH
.RXQWHUSURGX.WLYH EH.DXVH WKH\ DUH QRW WUDQVSDUHQW ,QVWHDG H[.KDQJH UDWH VPRRWKLQJ YLD
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
27/48
.KDQJHVLQWKHLQWHUHVWUDWHLQVWUXPHQWZLOOEHPRUHWUDQVSDUHQWDQGLQGL.DWHWKDWWKHQRPLQDO
DQ.KRU.RQWLQXHVWREHWKHLQIODWLRQWDUJHWDQGQRWWKHH[.KDQJHUDWH&HQWUDOEDQNV.DQDOVR
H[SODLQWRWKHSXEOL.WKHUDWLRQDOHIRUH[.KDQJHUDWHLQWHUYHQWLRQLQDPDQQHUDQDORJRXVWRWKDW
IRU LQWHUHVWUDWH VPRRWKLQJ LH DV D SROL.\ DLPHG QRW DW UHVLVWLQJ PDUNHWGHWHUPLQHG
PRYHPHQWVLQDQDVVHWSUL.HEXWDWPLWLJDWLQJSRWHQWLDOO\GHVWDELOL]LQJHIIH.WVRIDEUXSWDQG
VXVWDLQHG.KDQJHVLQWKDWSUL.H
7KH.RQ.OXVLRQWKDWWDUJHWLQJRQWKHH[.KDQJHUDWHLVOLNHO\WRZRUVHQWKHSHUIRUPDQ.H
RIPRQHWDU\SROL.\DOVRDSSOLHVWRWDUJHWLQJRWKHUDVVHWSUL.HV&OHDUO\VHWWLQJPRQHWDU\SROL.\
LQVWUXPHQWVWRD.KLHYHLQIODWLRQWDUJHWVUHTXLUHVID.WRULQJLQDVVHWSUL.HPRYHPHQWV&KDQJHV
LQDVVHWSUL.HVOLNHWKRVHRQ.RPPRQVWR.NKRXVLQJRUORQJWHUPERQGVKDYHLPSRUWDQWHIIH.WV
RQDJJUHJDWHGHPDQGDQGLQIODWLRQDQGDUHLPSRUWDQWWUDQVPLVVLRQPH.KDQLVPVIRUPRQHWDU\
SROL.\ HJ 0LVKNLQ E +RZHYHU WKH UHVSRQVH WR IOX.WXDWLRQV LQ WKHVH DVVHW SUL.HV
.DQQRW EHPH.KDQL.DO EH.DXVH GHSHQGLQJ RQ WKH QDWXUH RI WKH VKR.NV GULYLQJ WKHVH DVVHW
SUL.HVRSWLPDOPRQHWDU\SROL.\UHVSRQGVLQGLIIHUHQWZD\V)XUWKHUPRUHEH.DXVHPDQ\DVVHW
SUL.HVPDWWHUWDUJHWLQJRQMXVWRQHZRXOGEHVXERSWLPDO
,W LVDOVRKLJKO\ SUREOHPDWL. IRU D .HQWUDO EDQN WR WDUJHW YDULDEOHV WKDW DUH KDUG WR
.RQWURO DQG.OHDUO\ DVVHW SUL.HVVX.K DV KRXVLQJ DQGVWR.N SUL.HV IDOO LQWR WKLV .DWHJRU\
&HQWUDOEDQNVRIWHQORRNIRROLVKLIWKH\D.WWR.RQWURODVVHWSUL.HVDQGWKHQDUHXQDEOHWRGRVR
)XUWKHUPRUHZKHQ.HQWUDOEDQNVD.WDVLIWKH\.DQ.RQWURODVVHWSUL.HVOLNHWKRVHRQ.RPPRQ
VWR.NVWKHSXEOL.RIWHQEHJLQVWRIHDUWKDW.HQWUDOEDQNVPD\EHWRRSRZHUIXOWKXVSRWHQWLDOO\
.DXVLQJWKHSXEOL.WRTXHVWLRQVXSSRUWIRU.HQWUDOEDQNLQGHSHQGHQ.H6RPHUHVHDU.KHUVHJ
&H..KHWWL*HQEHUJ/LSVN\DQG:DGZDQLKDYHVXJJHVWHGWKDWWKHPRQHWDU\DXWKRULWLHV
VKRXOGD.WWROLPLWDVVHWSUL.HEXEEOHVWRSUHVHUYHILQDQ.LDOVWDELOLW\EXWWRGRWKLVVX..HVVIXOO\
WKH PRQHWDU\ DXWKRULWLHV QHHG WR NQRZ ZKDW DUH DSSURSULDWH DVVHW YDOXHV 7R WKLQN WKDW
JRYHUQPHQWRIIL.LDOVHYHQLIWKH\DUH.HQWUDOEDQNHUVNQRZEHWWHUZKDWWKHDVVHWSUL.HVVKRXOG
EHWKDQSULYDWHPDUNHWVZKRKDYHVWURQJHULQ.HQWLYHVWRJHWWKLQJVULJKWLVWRVD\WKHOHDVW
KLJKO\SUHVXPSWXRXV)XUWKHUPRUHDVSRLQWHGRXWLQ%HUQDQNHDQG*HUWOHUDQLQIODWLRQ
WDUJHWLQJ DSSURD.K ZKL.K GRHV QRW WDUJHW DVVHW SUL.HV EXW PDNHV XVH RI DQ LQIRUPDWLRQ
LQ.OXVLYH VWUDWHJ\ LQ VHWWLQJ SROL.\ LQVWUXPHQWV GRHV KDYH WKH DELOLW\ WR PDNH DVVHW SUL.H
EXEEOHVOHVVOLNHO\WKHUHE\SURPRWLQJILQDQ.LDOVWDELOLW\
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
28/48
7KHERWWRP OLQHLVWKDWWKHRSWLPDO.RQGX.WRIPRQHWDU\ SROL.\ UHTXLUHVWKDWPDQ\
DVVHWSUL.HVZKHWKHUH[.KDQJHUDWHVVWR.NSUL.HVKRXVLQJSUL.HVDQGORQJWHUPERQGSUL.HV
EHID.WRUHGLQWRGH.LVLRQVDERXWWKHVHWWLQJRIPRQHWDU\SROL.\LQVWUXPHQWV
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
29/48
EHLQJSURPLQHQWH[DPSOHVDUJXHIRUD ORQJUXQLQIODWLRQJRDORIZKL.KKDVWKH
SV\.KRORJL.DODSSHDORIWKHPDJL.QXPEHURI]HUR,QGHHGRQH.RQ.HUQLVWKDWDQLQIODWLRQ
JRDO JUHDWHU WKDQ ]HURPLJKW OHDG WRDGH.OLQH LQ.HQWUDO EDQN .UHGLELOLW\ DQGLQVWDELOLW\ LQ
LQIODWLRQH[SH.WDWLRQVZKL.K.RXOGOHDGWRDQXSZDUG.UHHSLQLQIODWLRQ+RZHYHUHYLGHQ.HLQ
%HUQDQNHHWDOVXJJHVWVWKDWPDLQWDLQLQJDWDUJHWIRULQIODWLRQDERYH]HUREXWQRWWRR
IDUDERYHOHVVWKDQIRUDQH[WHQGHGSHULRGGRHVQRWOHDGWRLQVWDELOLW\LQWKHSXEOL.V
LQIODWLRQH[SH.WDWLRQVRUWRDGH.OLQHLQ.HQWUDOEDQN.UHGLELOLW\
2QHSURPLQHQWDUJXPHQWDJDLQVWVHWWLQJWKHORQJUXQLQIODWLRQWDUJHWDERYH]HURUDLVHG
E\$NHUORI'L.NHQV DQG 3HUU\ LV WKDW VHWWLQJ LQIODWLRQ DW WRR ORZD OHYHOSURGX.HV
LQHIIL.LHQ.\ DQG ZLOO UHVXOW LQ D KLJKHU QDWXUDO UDWH RI XQHPSOR\PHQW 7KH\ DUJXH WKDW
GRZQZDUGULJLGLW\RIQRPLQDOZDJHVZKL.KWKH\VD\LV.RQVLVWHQWZLWKWKHHYLGHQ.HLQGL.DWHV
WKDWUHGX.WLRQVRIUHDOZDJHV.DQR..XURQO\WKURXJKLQIODWLRQ7KHLPSOL.DWLRQLVWKDWDYHU\
ORZ UDWH RI LQIODWLRQ PLJKW SUHYHQW UHDO ZDJHV IURP DGMXVWLQJ GRZQZDUG LQ UHVSRQVH WR
GH.OLQLQJ ODERU GHPDQG LQ .HUWDLQ LQGXVWULHV RU UHJLRQV WKHUHE\ OHDGLQJ WR LQ.UHDVHG
XQHPSOR\PHQWDQGKLQGHULQJWKHUHDOOR.DWLRQRIODERUIURPGH.OLQLQJVH.WRUVWRH[SDQGLQJ
VH.WRUV
7KHHYLGHQ.HIRUWKH$NHUORI'L.NHQV3HUU\PH.KDQLVPWKURXJKZKL.KORZLQIODWLRQ
UDLVHVWKHQDWXUDOUDWHRIXQHPSOR\PHQWLVQRWDWDOO.OHDU.XW&DUUXWKDQG2VZDOG
,QJUDPV 0./DXJKOLQ DQG
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
30/48
WKLVSKHQRPHQRQGHEWGHIODWLRQEXWZKL.KPLJKWEHPRUHD..XUDWHO\UHIHUUHGWRDVGHEW
LQIODWLRQLQUHDOWHUPVWKURXJKGHIODWLRQDQGVDZLWDVDPDMRUID.WRUSURPRWLQJWKHH.RQRPL.
GRZQWXUQGXULQJWKH*UHDW'HSUHVVLRQ:LWKOHVVQHWZRUWKDGYHUVHVHOH.WLRQDQGPRUDO
KD]DUGSUREOHPVLQ.UHDVHIRUOHQGHUVDQGVRWKH\.XWED.NRQOHQGLQJ7KHGH.OLQHLQQHWZRUWK
OHDGVWRDGH.OLQHLQWKHDPRXQWRI.ROODWHUDODOHQGHU.DQJUDELIWKHERUURZHUVLQYHVWPHQWV
WXUQ VRXU DQG WKH UHGX.WLRQ LQ .ROODWHUDO WKHUHIRUH LQ.UHDVHV WKH .RQVHTXHQ.HV RI DGYHUVH
VHOH.WLRQEH.DXVHLQWKH.DVHRID GHIDXOWORVVHVIURPORDQVDUHOLNHO\WREHPRUHVHYHUH,Q
DGGLWLRQWKHGH.OLQHLQQHWZRUWKLQ.UHDVHVPRUDOKD]DUGLQ.HQWLYHVIRUERUURZHUVWRWDNHRQ
H[.HVVLYHULVNEH.DXVHWKH\QRZKDYHOHVVWRORVHLIWKHLULQYHVWPHQWVJRVRXU7KLVUHDVRQLQJ
LQGL.DWHVWKDWGHIODWLRQ.DQSURPRWHILQDQ.LDOLQVWDELOLW\LQLQGXVWULDOL]HG.RXQWULHVWKURXJKWKH
GHEWGHIODWLRQPH.KDQLVPDUH.HQWH[DPSOHRIZKL.KLVZKDWKDVKDSSHQHGLQ-DSDQLQWKHODVW
GH.DGH0LVKNLQDQG%HUQDQNH
$QRWKHUUHDVRQIRU .KRRVLQJ DQ LQIODWLRQ JRDOWKDW PDNHV GHIODWLRQ XQOLNHO\ LV WKDW
GHIODWLRQPD\PDNHLWPRUHGLIIL.XOWWR.RQGX.WPRQHWDU\SROL.\:LWKPRUHIUHTXHQWSHULRGV
RIGHIODWLRQUHVXOWLQJIURPWRRORZDOHYHORIWKHLQIODWLRQWDUJHWLWZLOOEH.RPHPRUH.RPPRQ
WKDWVKRUWWHUPLQWHUHVWUDWHVZLOOKLWDIORRURI]HURGXULQJGHIODWLRQVDVR..XUUHGGXULQJWKH
*UHDW'HSUHVVLRQ DQGLQ-DSDQ UH.HQWO\2QH DUJXPHQW WKDW VRPHH.RQRPLVWVPDNH LV WKDW
ZKHQ WKH LQWHUHVW UDWH KLWV D IORRU RI ]HUR PRQHWDU\ SROL.\ EH.RPHV LQHIIH.WLYH 7KLV
DUJXPHQW LV D IDOOD.\ IRU WKH UHDVRQV RXWOLQHG LQ 0HOW]HU DQG 0LVKNLQ E
0RQHWDU\ SROL.\ ZRUNV WKURXJKPDQ\ RWKHU DVVHW SUL.HV EHVLGHV WKRVH RI VKRUWWHUP GHEW
VH.XULWLHVDQGVRHYHQZKHQVKRUWWHUPLQWHUHVWUDWHVKLWWKHIORRURI]HURPRQHWDU\SROL.\.DQ
VWLOOEHHIIH.WLYHDQGLQGHHGZDVVRGXULQJWKH*UHDW'HSUHVVLRQVHH5RPHU
1RQHWKHOHVV PRQHWDU\ SROL.\ EH.RPHVPRUH GLIIL.XOW GXULQJ GHIODWLRQDU\ HSLVRGHV
ZKHQLQWHUHVWUDWHVKLWDIORRURI]HUREH.DXVHWKHXVXDOJXLGHVWRWKH.RQGX.WRIPRQHWDU\
SROL.\ DUH QR ORQJHU UHOHYDQW ,Q UH.HQW \HDUVPX.K RI WKHUHVHDU.KRQKRZ .HQWUDO EDQNV
VKRXOGRSWLPDOO\.RQGX.WPRQHWDU\SROL.\IR.XVRQVR.DOOHG7D\ORUUXOHVLQZKL.KWKH.HQWUDO
7H.KQL.DOO\WKLVGHEWGHIODWLRQPH.KDQLVPUHTXLUHVWKDWWKHGHIODWLRQEHXQDQWL.LSDWHGLHLWLVDVXUSULVHDIWHU
WKHGHEW.RQWUD.WVKDYHEHHQZULWWHQ%H.DXVHLQLQGXVWULDO.RXQWULHVPDQ\RIWKHVH.RQWUD.WVDUHVRORQJHYHQD
GHIODWLRQWKDWEH.RPHVDQWL.LSDWHGDIWHUDSHULRGRIWLPHVWLOOLVXQDQWL.LSDWHGIURPWKHSRLQWRIYLHZRIPDQ\GHEW
.RQWUD.WVDQGWKHGHEWGHIODWLRQVWRU\VWLOOKROGV&OHDUO\LIGHEW.RQWUD.WVDUHRIYHU\VKRUWGXUDWLRQDVLVW\SL.DOO\
WKH.DVHLQHPHUJLQJPDUNHW.RXQWULHVWKHQGHIODWLRQVHYHQZKHQWKH\R..XUDUHOHVVOLNHO\WREHXQDQWL.LSDWHG
DQGVRWKHGHEWGHIODWLRQPH.KDQLVPLVLQRSHUDWLYHVHH0LVKNLQ16
6XPPHUV LV RQH SURPLQHQW H[DPSOH DQG UH.HQWO\ RIIL.LDOV RI WKH %DQN RI -DSDQKDYH XVHG WKLV
DUJXPHQWWRLQGL.DWHWKDWH[SDQVLRQDU\PRQHWDU\SROL.\LVOLNHO\WREHLQHIIH.WLYHLQSURPRWLQJ-DSDQHVHUH.RYHU\
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
31/48
EDQNVHWVWKHVKRUWWHUPLQWHUHVWUDWHVDWDOHYHOZKL.KGHSHQGVRQERWKRXWSXWDQGLQIODWLRQ
JDSV7KH7D\ORUYROXPHLVDQH[.HOOHQWH[DPSOHRIWKLVW\SHRIUHVHDU.K+RZHYHU
RQ.HWKHLQWHUHVWUDWHKLWVDIORRURI]HURDOORIWKHUHVHDU.KRQRSWLPDOPRQHWDU\SROL.\UXOHV
UHSUHVHQWHG E\ZRUN RI WKH W\SH LQ WKH7D\ORU YROXPH LV QRORQJHU XVHIXO EH.DXVH
PDQLSXODWLQJVKRUWWHUPLQWHUHVWUDWHVLVQRORQJHUDQHIIH.WLYHWRRORIPRQHWDU\SROL.\,QVX.K
D GHIODWLRQDU\ HQYLURQPHQW .HQWUDO EDQNV GR KDYH WKH DELOLW\ WR OLIW WKH H.RQRP\ RXW RI
UH.HVVLRQE\SXUVXLQJH[SDQVLRQDU\SROL.\DQG.UHDWLQJPRUHOLTXLGLW\EXWLWEH.RPHVPX.K
OHVV.OHDUKRZIDUWKH\QHHGWRJR7KLVULJKWIXOO\PDNHV.HQWUDOEDQNHUVTXLWHXQ.RPIRUWDEOH
7KHUHIRUH DQ LPSRUWDQW GLVDGYDQWDJH RI WRR ORZ D OHYHORI WKHORQJUXQ LQIODWLRQ WDUJHW LV
WKHUHIRUH WKDW LW PDNHV LW PRUH OLNHO\ WKDW GHIODWLRQDU\ HQYLURQPHQWV ZLOO R..XU LQ ZKL.K
.HQWUDO EDQNHUVZLOOEHPRUHDWVHDZLWKRXW WKHXVXDONQRZOHGJH WRJXLGHWKHPPDNLQJLW
KDUGHUIRUWKHPWRJHWPRQHWDU\SROL.\H[D.WO\ULJKW
$QRWKHUUHDVRQZK\.HQWUDOEDQNVPLJKWEHEHWWHURIIZLWKDORQJUXQLQIODWLRQJRDO
DERYH ]HUR LV WKDW LW LV .UX.LDO WKDW WKH\ QRW EH SHU.HLYHG DV EHLQJ RYHUO\REVHVVHGZLWK
.RQWUROOLQJLQIODWLRQDWWKHH[SHQVHRIRXWSXWVWDELOLW\,ID.HQWUDOEDQNLVSHU.HLYHGDVDQ
LQIODWLRQQXWWHU LQ0HUY\QLQJV WHUPLQRORJ\ LQZKL.K WKH.HQWUDO EDQN SXWV QR
ZHLJKWRQRXWSXWIOX.WXDWLRQVLQPDNLQJLWVGH.LVLRQVDERXWPRQHWDU\SROL.\LWLVOLNHO\WRORVH
WKHVXSSRUWRIWKHSXEOL.7RRORZDQLQIODWLRQWDUJHWVD\RUHYHQPD\VLJQDOWRWKH
SXEOL.WKDWWKH.HQWUDOEDQNGRHVQRW.DUHVXIIL.LHQWO\DERXWWKHSXEOL.V.RQ.HUQV
2QWKHRWKHUKDQG)LV.KHU)HOGVWHLQDQGWKHSDSHUVLQ)HOGVWHLQ
ILQGWKDWORZHULQJWKHLQIODWLRQUDWHWR]HURLQLQGXVWULDO.RXQWULHVIURP.XUUHQWO\ORZOHYHOV
UHGX.HVGLVWRUWLRQV .DXVHGE\ WKHLQWHUD.WLRQRI LQIODWLRQZLWK WKHWD[V\VWHP DQG WKLV .DQ
SURGX.HVXEVWDQWLDOZHOIDUHJDLQVRQWKHRUGHURIRI*'3+RZHYHUWKHVHGLVWRUWLRQV
.DQDOVREHHOLPLQDWHGE\.KDQJHVLQWKHWD[.RGHDQGVRLWLVQRW.OHDUWKDWWKH\SURYLGHD
MXVWLIL.DWLRQIRU.KRRVLQJD]HURORQJUXQLQIODWLRQJRDO
(PHUJLQJPDUNHW.RXQWULHVWKDWJURZDWKLJKOHYHOVPD\EHEHWWHURIIKDYLQJLQIODWLRQ
UDWHV VOLJKWO\ KLJKHU WKDQ WKRVH LQ LQGXVWULDOL]HG .RXQWULHV+LJKJURZWK .RXQWULHV W\SL.DOO\
H[SHULHQ.HUHDOH[.KDQJHUDWHDSSUH.LDWLRQE\DQDPRXQWSURSRUWLRQDOWRWKHUHODWLYHGLIIHUHQ.H
17
:HOIDUH.RVWVDULVLQJIURPLQIODWLRQEH.DXVHLQWHUHVWLVQRWSDLGRQKLJKSRZHUHGPRQH\WKHVR.DOOHGVKRH
OHDWKHU.RVWVDUHHVWLPDWHGWREHDQRUGHURIPDJQLWXGHVPDOOHUWKDQ.RVWVGXHWRWD[GLVWRUWLRQVDQGDUHWKXV
XQOLNHO\ WREH LPSRUWDQWIRUGH.LGLQJWKHRSWLPDO ORQJUXQLQIODWLRQJRDO )RUUH.HQWSDSHUVVHH/X.DV
)LV.KHU&RROH\DQG+DQVHQDQG/X.DV
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
32/48
RIWUDGHGWRQRQWUDGHGVH.WRUSURGX.WLYLW\JURZWKUHODWLYHWRWKHUHVWRIWKHZRUOGWKH+DUURG
%HODVVD6DPXHOVRQ HIIH.W ,I LW LV DSSURSULDWH IRU WKHVH .RXQWULHV WRDLP DW WUDGHGJRRGV
LQIODWLRQ VLPLODU WR LQGXVWULDOL]HG .RXQWULHV LQ WKH ORQJ UXQ WKHQ WUHQG UHDO DSSUH.LDWLRQ
UHTXLUHVDGRPHVWL.QRQWUDGHGJRRGVLQIODWLRQWKDWLVVRPHZKDWKLJKHU+HQ.HWKHORQJUXQ
LQIODWLRQ JRDO LQKLJKJURZWK H.RQRPLHVPLJKWQHHG WREHVOLJKWO\KLJKHU WKDQ LWZRXOGEH
GHVLUDEOHIRUDYHUDJHJURZWK.RXQWULHV7KLVSURYLGHVDQH[SODQDWLRQIRUZK\LQ&KLOHDKLJK
JURZWK.RXQWU\WKHORQJWHUPLQIODWLRQWDUJHWUDQJHKDVEHHQ.KRVHQDWSHU\HDU
,QVXPJLYHQWKH.RQIOL.WLQJDUJXPHQWVDERYHZKDWLVDQDSSURSULDWHORQJUXQJRDO
IRU LQIODWLRQ LVVWLOODQRSHQTXHVWLRQ$V DSUD.WL.DOPDWWHUDOO LQIODWLRQ WDUJHWLQJ.RXQWULHV
KDYH.KRVHQORQJUXQLQIODWLRQJRDOVVOLJKWO\DERYH]HURZLWKWKHPLGSRLQWVRIWKHORQJUXQ
WDUJHWUDQJHVO\LQJEHWZHHQDQGVHH7DEOH)XWXUHUHVHDU.KPD\KHOS.HQWUDOEDQNVWR
GH.LGHRQZKHWKHUDORQJUXQJRDORXWVLGHWKLVUDQJHLVDSSURSULDWHDQGSURYLGHPRUHSUH.LVLRQ
DVWRZKDWWKLVJRDOVKRXOGEH
3UL.H/HYHO9HUVXV,QIODWLRQ7DUJHW
&XUUHQWO\DOO .RXQWULHVZKRKDYH DGRSWHGLQIODWLRQ WDUJHWLQJ KDYH .KRVHQ WR WDUJHW
LQIODWLRQUDWKHUWKDQWKHSUL.HOHYHO+RZHYHUZKL.KRIWKHVHWZRWDUJHWVZRXOGUHVXOWLQEHWWHU
H.RQRPL.SHUIRUPDQ.HLVDOVRDQRSHQTXHVWLRQ
7KHUHDUHWZRNH\DGYDQWDJHVRIDSUL.HOHYHOWDUJHWUHODWLYHWRDQLQIODWLRQWDUJHW7KH
ILUVWLVWKDWDSUL.HOHYHOWDUJHW.DQUHGX.HWKHXQ.HUWDLQW\DERXWZKHUHWKHSUL.HOHYHOZLOOEH
RYHUORQJKRUL]RQV:LWKDQLQIODWLRQWDUJHWPLVVHVRIWKHLQIODWLRQWDUJHWDUHQRWUHYHUVHGE\
WKH.HQWUDO EDQN7KH UHVXOW LVWKDW LQIODWLRQZLOOEHD VWDWLRQDU\VWR.KDVWL.SUR.HVV WKDW LV
LQWHJUDWHGRIRUGHU]HUR,ZKLOHWKHSUL.HOHYHOZLOOEHQRQVWDWLRQDU\DQ,SUR.HVV7KH
UHVXOW LV WKDW WKHXQ.HUWDLQW\ RI ZKHUH WKHSUL.H OHYHO ZLOO EH LQ WKH IXWXUH JURZVZLWK WKH
IRUH.DVWKRUL]RQ7KLVXQ.HUWDLQW\.DQPDNHORQJUXQSODQQLQJGLIIL.XOWDQGPD\WKHUHIRUHOHDG
WRDGH.UHDVHLQH.RQRPL.HIIL.LHQ.\$OWKRXJK0.&DOOXPKDVDUJXHGWKDWWKHDPRXQW
RIORQJUXQXQ.HUWDLQW\DERXWWKHIXWXUHSUL.HOHYHOWKDWZRXOGDULVHIURPVX..HVVIXODGKHUHQ.H
WRDQLQIODWLRQWDUJHWPD\QRWEHDOOWKDWODUJHLWVWLOO.RPSOL.DWHVWKHSODQQLQJSUR.HVVDQGPD\
OHDGWRPRUHPLVWDNHVLQLQYHVWPHQWGH.LVLRQV
7KHVH.RQG SRVVLEOHDGYDQWDJHRI DSUL.HOHYHO WDUJHW LV WKDW LQPRGHOVZLWK DKLJK
GHJUHH RI IRUZDUGORRNLQJ EHKDYLRU RQ WKHSDUW RI H.RQRPL. DJHQWV HJ 6YHQVVRQ
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
33/48
:RRGIRUG 6YHQVVRQ DQG:RRGIRUG &ODULGD *DOL DQG *HUWOHU 'LWPDU
*DYLQDQG\GODQGDQG9HVWLQLWSURGX.HVOHVVRXWSXWYDULDQ.HWKDQDQ
LQIODWLRQ WDUJHW +RZHYHU HPSLUL.DO HYLGHQ.H HJ )XKUHU GRHV QRW .OHDUO\ VXSSRUW
IRUZDUGORRNLQJ H[SH.WDWLRQV IRUPDWLRQ DQGPRGHOV ZLWK IRUZDUGORRNLQJ EHKDYLRU KDYH
.RXQWHULQWXLWLYHSURSHUWLHVWKDWVHHPWREHLQ.RQVLVWHQWZLWKLQIODWLRQG\QDPL.V(VWUHOODDQG
)XKUHU
7KHWUDGLWLRQDOYLHZIRU.HIXOO\DUWL.XODWHGE\)LV.KHUDUJXHVWKDWDSUL.HOHYHO
WDUJHWSURGX.HVPRUHRXWSXWYDULDELOLW\WKDQDQLQIODWLRQWDUJHWEH.DXVHXQDQWL.LSDWHGVKR.NVWR
WKHSUL.HOHYHODUHQRWWUHDWHGDVE\JRQHVDQGPXVWEHRIIVHW$SUL.HOHYHOWDUJHWUHTXLUHV
WKDW RYHUVKRRWV RU XQGHUVKRRWV RI WKH WDUJHW PXVW EH UHYHUVHG DQG WKLV .RXOG LPSDUW
VLJQLIL.DQWO\PRUHYRODWLOLW\WRPRQHWDU\SROL.\DQGZLWKVWL.N\SUL.HVWRWKHUHDOH.RQRP\LQ
WKHVKRUWUXQ
$OWKRXJKWKHPRGHOVZLWKIRUZDUGORRNLQJSUL.HVHWWLQJ.LWHGDERYHGRQRWILQGWKDW
WKLV IHDWXUH RI D SUL.HOHYHO WDUJHW LQ.UHDVHV RXWSXW YDULDELOLW\ WKH\ GR QRW IR.XV RQ RQH
SDUWL.XODUSUREOHPZLWKDSUL.HOHYHOWDUJHWWKHID.WWKDWDSUL.HOHYHOWDUJHWPD\OHDGWRPRUH
IUHTXHQW HSLVRGHV RI GHIODWLRQ $V ZH KDYH VHHQ LQ WKH SUHYLRXV VXEVH.WLRQ HSLVRGHV RI
GHIODWLRQSUHVHQWSROL.\PDNHUVZLWKWZRSUREOHPVDSRVVLEOHLQ.UHDVHLQILQDQ.LDOLQVWDELOLW\
ZLWKSRWHQWLDOKLJKRXWSXW ORVVHVIRU WKHH.RQRP\DQGDQLQ.UHDVHGOLNHOLKRRGWKDWQRPLQDO
LQWHUHVWUDWHVKLWDIORRURI]HURPDNLQJWKH.RQGX.WRIPRQHWDU\SROL.\PRUH.RPSOL.DWHG
$QRWKHU SUREOHP IRU D SUL.HOHYHO WDUJHW WKDW KDV UH.HLYHG OLWWOH DWWHQWLRQ LQ WKH
OLWHUDWXUH LVWKHSUHVHQ.HRIPHDVXUHPHQWHUURULQLQIODWLRQ0RVW UHVHDU.KRQPHDVXUHPHQW
HUURUWDNHVWKHYLHZWKDWLWLV LQIODWLRQWKDWLVPHDVXUHGZLWKHUURUUDWKHUWKDQWKHSUL.HOHYHO
DQG WKLV ZDV WKH DSSURD.K WDNHQ E\ WKH %RVNLQ &RPPLVVLRQ 7KLV LPSOLHV WKDW WKH
PHDVXUHPHQW HUURU LQ WKHSUL.H OHYHO LV , VR WKDW D SUL.HOHYHO WDUJHW UHVXOWV LQJURZLQJ
XQ.HUWDLQW\ DERXW WKH WUXH SUL.H OHYHO DV WKH IRUH.DVW KRUL]RQ JURZV 7KXV PDQ\ RI WKH
DUJXPHQWVWKDWDSUL.HOHYHOWDUJHWUHVXOWVLQORZHUORQJUXQXQ.HUWDLQW\DERXWWKHWUXHSUL.H
OHYHOPD\EHRYHUVWDWHG
18
7KLV YLHZ LV VXSSRUWHGE\ VLPXODWLRQVRIPD.URH.RQRPHWUL.PRGHOVZLWK ED.NZDUGORRNLQJ H[SH.WDWLRQV
ZKL.KW\SL.DOO\ILQGWKDWDSUL.HOHYHOWDUJHWOHDGVWRJUHDWHUYDULDELOLW\RIRXWSXWDQGLQIODWLRQWKDQDQLQIODWLRQ
WDUJHW(JVHH+DOGDQHDQG6DOPRQ
19
6HH%RVNLQHWDO0RXOWRQDQG6KDSLULRDQG:LO.R[IRUH[DPSOH
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
34/48
7KH.RQIOL.WLQJDUJXPHQWVDERYHLQGL.DWHWKDWZKHWKHUSUL.HOHYHOUDWKHUWKDQLQIODWLRQ
WDUJHWVZRXOGSURGX.HEHWWHURXW.RPHVLVDQRSHQTXHVWLRQ*LYHQWKLVXQ.HUWDLQW\DERXWWKH
EHQHILWVRISUL.HOHYHOWDUJHWLQJLWLVQRWVXUSULVLQJWKDWQR.HQWUDOEDQNKDVGH.LGHGWRWDUJHW
WKHSUL.HOHYHOLQUH.HQW\HDUV+RZHYHUWKHDUJXPHQWVPDGHKHUHIRUSUHIHUULQJDQLQIODWLRQ
WDUJHWRYHUDSUL.HOHYHOWDUJHWGRQRWUXOHRXWK\EULGSROL.LHVZKL.K.RPELQHIHDWXUHVRIDQ
LQIODWLRQDQGDSUL.HOHYHOWDUJHWDQGVRPLJKWSURYLGHWKHEHVWRIERWKZRUOGV
$QLQIODWLRQWDUJHW.RXOGEHDQQRXQ.HGZLWKD.RPPLWPHQWWRVRPHHUURU.RUUH.WLRQLQ
ZKL.KWDUJHWPLVVHVZLOOEHRIIVHWWRVRPHH[WHQWLQWKHIXWXUH5H.HQWUHVHDU.KVKRZVWKDWDQ
LQIODWLRQWDUJHWZLWKDVPDOODPRXQWRIHUURU.RUUH.WLRQ.DQVXEVWDQWLDOO\UHGX.HWKHXQ.HUWDLQW\
DERXW WKHSUL.HOHYHOLQ WKH ORQJ UXQEXWVWLOOJHQHUDWHYHU\IHZHSLVRGHVRIGHIODWLRQHJ
%OD.N0D.NOHPDQG5RVHLQJDQG%DWWLQLDQG
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
35/48
UDWHVWKHUHE\VWLPXODWLQJWKHH.RQRP\DQGZRXOGKHOSLQGX.HDULVHLQWKHSUL.HOHYHO WKDW
ZRXOG UHSDLU EDODQ.H VKHHWV*LYHQ WKH VX..HVVRI D SUL.H OHYHO WDUJHW LQ DPHOLRUDWLQJ WKH
HIIH.WVRIWKH*UHDW'HSUHVVLRQLQ6ZHGHQLQWKHV%HUJDQG-RQXQJSUL.HOHYHO
WDUJHWVKDYHUH.HQWO\EHHQSURSRVHGWRKHOSMXPSVWDUWWKH-DSDQHVHH.RQRP\HJ%HUQDQNH
%OLQGHU*RRGIULHQGDQG6YHQVVRQ
&RQOXVLRQV
7KH HPHUJHQ.H RI LQIODWLRQ WDUJHWLQJ RYHU WKH ODVW WHQ \HDUV KDV EHHQ DQ H[.LWLQJ
GHYHORSPHQWLQWKHDSSURD.KRI.HQWUDOEDQNVWRWKH.RQGX.WRIPRQHWDU\SROL.\7KHUHYLHZ
LQ WKLV SDSHU KDV LQGL.DWHG WKDW LQIODWLRQ WDUJHWLQJ KDVEHHQ TXLWH VX..HVVIXO LQ.RQWUROOLQJ
LQIODWLRQ DQG LPSURYLQJ WKH SHUIRUPDQ.H RI WKH H.RQRP\+RZHYHU DV RXU GLV.XVVLRQ RI
RSHUDWLRQDOGHVLJQLVVXHVIRULQIODWLRQWDUJHWLQJDQGXQUHVROYHGLVVXHVWKHUHLVVWLOOPX.KWR
OHDUQDERXWKRZWREHVWRSHUDWHLQIODWLRQWDUJHWLQJUHJLPHV:HH[SH.WWKDWIXWXUHH[SHULHQ.H
DQGUHVHDU.KZLOOKHOSXVWRUHILQHWKHLQIODWLRQWDUJHWLQJDSSURD.KKRSHIXOO\LPSURYLQJWKH
SUR.HVVRIPRQHWDU\SROL.\PDNLQJIXUWKHU
5HIHUHQHV
$QGHUVRQ3DQG'*UXHQ0D.URH.RQRPL.3ROL.LHVDQG*URZWKLQ3DOOH$QGHUVRQ-D.TXL'Z\HUDQG'DYLG*UXHQHGV3URGX.WLYLW\DQG*URZWK5HVHUYH%DQNRI$XVWUDOLD6\GQH\
$QGUHV-DQG,+HUQDQGR'RHV,QIODWLRQ+DUP(.RQRPL.*URZWK"(YLGHQ.HIURPWKH2(&'LQ0DUWLQ
)HOGVWHLQHG7KH&RVWVDQG%HQHILWVRI3UL.H6WDELOLW\8QLYHUVLW\RI&KL.DJR3UHVV&KL.DJR
$NHUORI*'L.NHQV:DQG*3HUU\7KH0D.URH.RQRPL.VRI/RZ,QIODWLRQ%URRNLQJV3DSHUVRQ
(.RQRPL.$.WLYLW\
$OPHLGD$DQG&*RRGKDUW'RHVWKH$GRSWLRQRI,QIODWLRQ7DUJHWV$IIH.W&HQWUDO%DQN%HKDYLRXU"
%DQ.D1D]LRQDOHGHO/DYRUR4XDUWHUO\5HYLHZ6XSSOHPHQW0DU.KSS
%DOO/3ROL.\5XOHV)RU2SHQ(.RQRPLHVLQ-RKQ7D\ORUHG0RQHWDU\3ROL.\5XOHV7KH8QLYHUVLW\
RI&KL.DJR3UHVV&KL.DJR,/
%DQ.RGH0H[L.R,QIODWLRQ5HSRUW-XO\6HSWHPEHU%DQ.RGH0H[L.R0H[L.R&LW\
%DQNRI%UD]LO,QIODWLRQ5HSRUW-XO\%DQNRI%UD]LO%UDVLOLD
%DWWLQL1 DQG$+DOGDQH)RUZDUG/RRNLQJ 5XOHV IRU0RQHWDU\3ROL.\ LQ -RKQ7D\ORU0RQHWDU\
3ROL.\5XOHV7KH8QLYHUVLW\RI&KL.DJR3UHVV&KL.DJR,/
%DWWLQL1DQG7
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
36/48
%DUUR5,QIODWLRQDQG(.RQRPL.*URZWK1DWLRQDO%XUHDXRI(.RQRPL.5HVHDU.K:RUNLQJ3DSHU1R
%HUJ&DQG/-RQXQJ3LRQHHULQJ3UL.H/HYHO7DUJHWLQJWKH6ZHGLVK([SHULHQ.H6YHULJHV
5LNVEDQN:RUNLQJ3DSHU6HULHV-XQH
%HUQDQNH % -DSDQHVH 0RQHWDU\ 3ROL.\ $ &DVH RI 6HOI ,QGX.HG 3DUDO\VLV PLPHR 3ULQ.HWRQ
8QLYHUVLW\
%HUQDQNH%6/DXED.K70LVKNLQ)6DQG$63RVHQ ,QIODWLRQ7DUJHWLQJ /HVVRQVIURP WKH
,QWHUQDWLRQDO([SHULHQ.H3ULQ.HWRQ8QLYHUVLW\3UHVV3ULQ.HWRQ
%HUQDQNH%DQG0*HUWOHU0RQHWDU\3ROL.\DQG$VVHW3UL.H9RODWLOLW\,Q1HZ&KDOOHQJHVIRU
0RQHWDU\3ROL.\)HGHUDO5HVHUYH%DQNRIDQVDV&LW\DQVDV&LW\
%HUQDQNH%6DQG)60LVKNLQ,QIODWLRQ7DUJHWLQJ$1HZ)UDPHZRUNIRU0RQHWDU\3ROL.\"-RXUQDO
RI(.RQRPL.3HUVSH.WLYHV
%OD.N50D.NOHPDQG'5RVH2Q3ROL.\5XOHVIRU3UL.H6WDELOLW\ 3UL.H6WDELOLW\,QIODWLRQ7DUJHWV
DQG0RQHWDU\3ROL.\3UR.HHGLQJVRID&RQIHUHQ.HKHOGE\%DQNRI&DQDGD2WWDZD&DQDGD
%OLQGHU$0RQHWDU\3ROL.\DWWKH=HUR/RZHU%RXQG%DODQ.LQJWKH5LVNVSUHVHQWHGDW WKH)HGHUDO
5HVHUYH%DQNRI%RVWRQ&RQIHUHQ.H0RQHWDU\3ROL.\LQD/RZ,QIODWLRQ(QYLURQPHQW2.WREHU
%UDVK',QIODWLRQ7DUJHWLQJLQ1HZ=HDODQG6SHH.KWRWKH7UDQV7DVPDQ%XVLQHVV&\.OH
0HOERXUQH)HEUXDU\
%UXQR0DQG:(DVWHUO\,QIODWLRQDQG*URZWK,Q6HDU.KRID6WDEOH5HODWLRQVKLS)HGHUDO5HVHUYH
%DQNRI6W/RXLV5HYLHZ
%RVNLQ0-'XOEHUJHU(OOHQ5*RUGRQ5-*ULOL.KHV=DQG':-RUJHQVRQ7RZDUGD0RUH
$..XUDWH0HDVXUHRIWKH&RVWRI/LYLQJ)LQDO5HSRUWWRWKH6HQDWH)LQDQ.H&RPPLWWHH'H.HPEHU
&DUUXWK $ DQG $ 2VZDOG 3D\ 'HWHUPLQDWLRQ DQG ,QGXVWULDO 3URVSHULW\ 2[IRUG 8QLYHUVLW\ 3UHVV
&ODUHQGRQ3UHVV2[IRUG
&DUVWHQV$DQG$:HUQHU 0H[L.RV0RQHWDU\ 3ROL.\)UDPHZRUN8QGHU D )ORDWLQJ ([.KDQJH5DWH
5HJLPH%DQ.RGH0H[L.R5HVHDU.K3DSHU0D\
&H..KHWWL 6 DQG0(KUPDQQ 'RHV ,QIODWLRQ 7DUJHWLQJ ,Q.UHDVH2XWSXW9RODWLOLW\" $Q,QWHUQDWLRQDO
&RPSDULVRQ RI3ROL.LPDNHUVSUHIHUHQ.HV DQG2XW.RPHV &HQWUDO%DQN RI&KLOH:RUNLQJ3DSHUV $SULO
KWWSZZZE.HQWUDO.O(VWXGLRV'7%&GWE.SGI
&H..KHWWL6+*HQEHUJ-/LSVNLDQG6:DGKZDQL$VVHW3UL.HVDQG&HQWUDO%DQN3ROL.\ *HQHYD
5HSRUWVRQWKH:RUOG(.RQRP\1R,QWHUQDWLRQDO&HQWHUIRU0RQHWDU\DQG%DQNLQJ6WXGLHVDQG&HQWUHIRU
(.RQRPL.3ROL.\5HVHDU.K-XO\
&HQWUDO%DQNRI&KLOH0RQHWDU\3ROL.\5HSRUW0D\
&HQWUDO%DQNRI&KLOHE0RQHWDU\3ROL.\RIWKH&HQWUDO%DQNRI&KLOH2EMH.WLYHVDQG7UDQVPLVVLRQ0D\
&ODULGD5-*DOLDQG0*HUWOHU7KH6.LHQ.HRI0RQHWDU\3ROL.\$1HZH\QHVLDQ3HUVSH.WLYH
-RXUQDORI(.RQRPL./LWHUDWXUH'H.HPEHU
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
37/48
&RROH\7)DQG*'+DQVHQ7KH,QIODWLRQ7D[LQD5HDO%XVLQHVV&\.OH0RGHO$PHUL.DQ(.RQRPL.
5HYLHZ
&RUER92/DQGHUUHW.KHDQG6.KPLGW+HEEHO'RHV,QIODWLRQ7DUJHWLQJ0DNHD'LIIHUHQ.HLQ1
/RD\]DDQG56RWRHGV7HQ
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
38/48
*RRGIULHQG02YHU.RPLQJWKH=HUR%RXQGRQ,QWHUHVW5DWH3ROL.\SUHVHQWHGDWWKH)HGHUDO5HVHUYH
%DQNRI%RVWRQ&RQIHUHQ.H0RQHWDU\3ROL.\LQD/RZ,QIODWLRQ(QYLURQPHQW2.WREHU
*ULHUDQG*7XOOR.N$Q(PSLUL.DO$QDO\VLVRI&URVV1DWLRQDO(.RQRPL.*URZWK-RXUQDO
RI0RQHWDU\(.RQRPL.V6HSWHPEHUSS
*URVKHQ(/DQG6.KZHLW]HU0(7KH(IIH.WVRI,QIODWLRQRQ:DJH$GMXVWPHQWVLQ)LUP/HYHO'DWD
*UHDVHRU6DQG")HGHUDO5HVHUYH%DQNRI1HZ
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
39/48
0LVKNLQ )6 $V\PPHWUL. ,QIRUPDWLRQDQG)LQDQ.LDO&ULVHV $+LVWRUL.DO 3HUVSH.WLYH LQ5*OHQQ
+XEEDUGHG)LQDQ.LDO0DUNHWVDQG)LQDQ.LDO&ULVHV8QLYHUVLW\RI&KL.DJR3UHVV&KL.DJR
0LVKNLQ)6D8QGHUVWDQGLQJ)LQDQ.LDO&ULVHV$'HYHORSLQJ&RXQWU\3HUVSH.WLYHLQ0L.KDHO%UXQR
DQG%RULV3OHVNRYL.HGV$QQXDO:RUOG%DQN&RQIHUHQ.HRQ'HYHORSPHQW(.RQRPL.V:RUOG%DQN:DVKLQJWRQ
'&
0LVKNLQ )6 E 7KH&KDQQHOVRI0RQHWDU\7UDQVPLVVLRQ /HVVRQVIRU0RQHWDU\3ROL.\%DQTXH'H
)UDQ.H%XOOHWLQ'LJHVW1R
0LVKNLQ )6 7KH &DXVHV DQG 3URSDJDWLRQ RI )LQDQ.LDO ,QVWDELOLW\ /HVVRQV IRU 3ROL.\PDNHUV
0DLQWDLQLQJ)LQDQ.LDO6WDELOLW\LQD*OREDO(.RQRP\ )HGHUDO5HVHUYH%DQNRIDQVDV&LW\DQVDV&LW\02
0LVKNLQ)63URPRWLQJ-DSDQHVH5H.RYHU\LQHQL.KL,VKLJDNLDQG+LUR\XNL+LQRHGV7RZDUGVWKH
5HVWRUDWLRQ RI 6RXQG %DQNLQJ 6\VWHPV LQ -DSDQ WKH *OREDO ,PSOL.DWLRQV REH 8QLYHUVLW\ 3UHVV DQG
,QWHUQDWLRQDO0RQHWDU\)XQGREH
0LVKNLQ)6D/HVVRQVIURPWKH$VLDQ&ULVLV-RXUQDORI,QWHUQDWLRQDO0RQH\DQG)LQDQ.H
0LVKNLQ)6E,QWHUQDWLRQDO([SHULHQ.HVZLWK'LIIHUHQW0RQHWDU\3ROL.\5HJLPHV-RXUQDORI0RQHWDU\
(.RQRPL.V9RO
0LVKNLQ)6D,VVXHVLQ,QIODWLRQ7DUJHWLQJPLPHRSDSHUSUHVHQWHGDWWKH%DQNRI&DQDGD&RQIHUHQ.H
3UL.H6WDELOLW\DQGWKH/RQJ5XQ7DUJHWIRU0RQHWDU\3ROL.\-XQH
0LVKNLQ)6E,QIODWLRQ7DUJHWLQJLQ(PHUJLQJ0DUNHW&RXQWULHV$PHUL.DQ(.RQRPL.5HYLHZ0D\
0LVKNLQ)6.)URP0RQHWDU\7DUJHWLQJWR,QIODWLRQ7DUJHWLQJ/HVVRQV)URP,QGXVWULDOL]HG&RXQWULHV
SDSHU SUHVHQWHG DW %DQ.R GH 0H[L.R &RQIHUHQ.H 6WDELOL]DWLRQ DQG 0RQHWDU\ 3ROL.\ 7KH ,QWHUQDWLRQDO
([SHULHQ.H0H[L.R&LW\1RYHPEHU
0LVKNLQ)6DQG06DYDVWDQR0RQHWDU\3ROL.\6WUDWHJLHVIRU/DWLQ$PHUL.D1%(5:RUNLQJ3DSHU
1RIRUWK.RPLQJLQWKH-RXUQDORI'HYHORSPHQW(.RQRPL.V
0RUDQGp)$'H.DGHRI,QIODWLRQ7DUJHWLQJLQ&KLOH'HYHORSPHQWV/HVVRQV&KDOOHQJHVLQ1/RD\]D
DQG 56RWR HGV7HQ
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
40/48
6.KDH.KWHU$056WRQHDQG0=HOPHU3UD.WL.DO,VVXHVLQWKH$GRSWLRQRI,QIODWLRQ7DUJHWLQJE\
(PHUJLQJ0DUNHW&RXQWULHVPLPHR,0)
6KDSLUR0'DQG'::LO.R[0LVPHDVXUHPHQWLQWKH&RQVXPHU3UL.H,QGH[$Q(YDOXDWLRQLQ%HQ
6%HUQDQNHDQG-XOLR-5RWHPEHUJHGV1%(50D.URH.RQRPL.V$QQXDO 0,73UHVV&DPEULGJH0DVV
6KHUZLQ0,QIODWLRQ7DUJHWLQJ
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
41/48
'DWD$SSHQGL[
'HILQLWLRQVDQGVRXU.HVRIWKHGDWDXVHGLQVH.WLRQDUHWKHIROORZLQJ
,7GXPP\YDULDEOHIRUKDYLQJLQSOD.HLQIODWLRQWDUJHWLQJ6SH.LILHVDYDOXHRIRWKHUZLVHIRUD\HDUIRU
ZKL.KDWOHDVWPRQWKVDUH.RYHUHGE\DSUHYLRXVO\DQQRXQ.HGLQIODWLRQWDUJHW
6RXU.H.RXQWU\VRXU.HVDQG6.KDH.KWHUHWDO
,QI &3, LQIODWLRQ QRUPDOL]HG DV SHU.HQWDJH YDULDWLRQ RI WKHDQQXDO DYHUDJH&3,GLYLGHG E\RQHSOXV WKH
SHU.HQWDJHYDULDWLRQRIWKHDQQXDODYHUDJH&3,
6RXU.H,0),QWHUQDWLRQDO)LQDQ.LDO6WDWLVWL.VYDULRXVLVVXHV.RGHH
07GXPP\YDULDEOHIRUKDYLQJLQSOD.HPRQHWDU\JURZWKWDUJHWV6SH.LILHVDYDOXHRIRWKHUZLVHIRUD
\HDUIRUZKL.KDQ\PRQWKLV.RYHUHGE\DSUHYLRXVO\DQQRXQ.HGPRQHWDU\WDUJHW
6RXU.H.RXQWU\VRXU.HVDQG-30RUJDQ*XLGHWR&HQWUDO%DQN:DW.KLQJ
%:H[.KDQJHUDWHEDQGZLGWKQRUPDOL]HGDVWKHEDQGZLGWKGLYLGHGE\RQHSOXVWKHEDQGZLGWK
6RXU.H,0)([.KDQJH$UUDQJHPHQWVDQG([.KDQJH5HVWUL.WLRQVYDULRXVLVVXHV
)LV.DOWKHUDWLRRIWKHJRYHUQPHQWVXUSOXVWR*'36RXU.H.RXQWU\VRXU.HVDQG,0),QWHUQDWLRQDO)LQDQ.LDO6WDWLVWL.VYDULRXVLVVXHV.RGHVDQGE
)LQILQDQ.LDOGHSWKPHDVXUHGDVWKHUDWLRRI0WR*'3
6RXU.H.RXQWU\VRXU.HVDQG,0),QWHUQDWLRQDO)LQDQ.LDO6WDWLVWL.VYDULRXVLVVXHV.RGHVDQGE
2SHQWUDGHRSHQQHVVPHDVXUHGDVWKHUDWLRRIWKHVXPRIH[SRUWVDQGLPSRUWVWR*'3
6RXU.H.RXQWU\VRXU.HVDQG,0),QWHUQDWLRQDO)LQDQ.LDO6WDWLVWL.V.RGHV..DQGE
&%),GXPP\IRU.HQWUDOEDQNIRUPDOLQGHSHQGHQ.H6SH.LILHVDYDOXHRIRWKHUZLVHIRUD\HDUIRUZKL.K
DQ\PRQWKLV.RYHUHGE\.HQWUDOEDQNIRUPDOLQGHSHQGHQ.H)RUPDOLQGHSHQGHQ.HLVDWWDLQHGZKHQD.HQWUDO
EDQNLVHVWDEOLVKHGDVDOHJDOO\LQGHSHQGHQWDQGRUDXWRQRPRXVVWDWHLQVWLWXWLRQ
6RXU.H.RXQWU\VRXU.HVDQG-30RUJDQ*XLGHWR&HQWUDO%DQN:DW.KLQJ
&%*,GXPP\IRU.HQWUDOEDQNJRDOLQGHSHQGHQ.H6SH.LILHVDYDOXHRIRWKHUZLVHIRUD\HDUIRUZKL.K
DQ\PRQWKLV .RYHUHGE\ .HQWUDOEDQN JRDO LQGHSHQGHQ.H*RDO LQGHSHQGHQ.H LVDWWDLQHGZKHQ WKH&HQWUDO
%DQNDORQHGHWHUPLQHVWKHOHYHOVIRULWVPRQHWDU\SROL.\WDUJHWVLHH[.KDQJHUDWHPRQHWDU\JURZWKDQGRU
LQIODWLRQWDUJHWV:KHQWDUJHWOHYHOVDUHGHWHUPLQHGVHSDUDWHO\E\WKHJRYHUQPHQWRU.RQJUHVVMRLQWO\E\WKH
EDQN DQGHLWKHUJRYHUQPHQWRU .RQJUHVV RUZKHQDJRYHUQPHQWUHSUHVHQWDWLYH .DVWVYRWHVRQ.HQWUDOEDQN
ERDUGGH.LVLRQVWKH.HQWUDOEDQNLV.RQVLGHUHGJRDOGHSHQGHQW
6RXU.H.RXQWU\VRXU.HVDQG-30RUJDQ*XLGHWR&HQWUDO%DQN:DW.KLQJ
&%,,GXPP\IRU.HQWUDOEDQNLQVWUXPHQWLQGHSHQGHQ.H6SH.LILHVD YDOXHRI RWKHUZLVH IRUD\HDU IRU
ZKL.KDQ\PRQWKLV .RYHUHGE\ .HQWUDOEDQN LQVWUXPHQWLQGHSHQGHQ.H,QVWUXPHQW LQGHSHQGHQ.HLV DWWDLQHG
ZKHQ WKH.HQWUDO EDQN VHWV IUHHO\LWV LQVWUXPHQWLQ LWVSXUVXLWRIPRQHWDU\SROL.\JRDOV:KHQ.HQWUDOEDQN
SROL.\GH.LVLRQVDUHHLWKHUVXEMH.WWRJRYHUQPHQWDSSURYDORU.DQEHUHYHUVHGE\WKHJRYHUQPHQWLQVWUXPHQW
LQGHSHQGHQ.HLVQRWLQSOD.H
6RXU.H.RXQWU\VRXU.HV-30RUJDQ*XLGHWR&HQWUDO%DQN:DW.KLQJDQG6.KDH.KWHUHWDO
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
42/48
)LJXUH
,QIODWLRQDW$GRSWLRQRI,QIODWLRQ7DUJHWLQJLQ&RXQWULHV
1RWH$QQXDOLQIODWLRQUDWHVDUHWKRVHREVHUYHGRQHTXDUWHUEHIRUHDGRSWLQJ,76RXU.H$XWKRUV.DO.XODWLRQVEDVHGRQGDWDIURP,)6.RXQWU\VRXU.HVDQG6.KDH.KWHUHWDO
7DEOH
&RXQWU\6DPSOHVRI,QIODWLRQ7DUJHWHUVDQG1RQ7DUJHWHUV
,QIODWLRQ7DUJHWHUV 1RQ7DUJHWHUV
$XVWUDOLD 8QLWHGLQJGRP 'HQPDUN
%UD]LO 0H[L.R )UDQ.H
&DQDGD 1HZ=HDODQG *HUPDQ\
&KLOH 3HUX ,WDO\
&RORPELD 3RODQG -DSDQ
&]H.K5HSXEOL. 6RXWK$IUL.D 1RUZD\
)LQODQG 6SDLQ 3RUWXJDO
,VUDHO 6ZHGHQ 8QLWHG6WDWHV
RUHD 7KDLODQG 6ZLW]HUODQG
3HUX
&KLOH
0H[L.R,VUDHO
&DQDGD%UD]LO
$XVWUDOLD
&]H.K5HSXEOL. &RORPELD
3RODQG
6SDLQ
8
6RXWK$IUL.D
6ZHGHQ7KDLODQG
RUHD5HS)LQODQG1HZ=HDODQG
6ZLW]HUODQG
,QIODWLRQ5DWH
8/3/2019 BaiTT3-2001-One Decade Inflation Tar Getting in the World
43/48
7DEOH
,PSOHPHQWDWLRQDQG'HVLJQRI,QIODWLRQ7DUJHWLQJLQ&RXQWUL
&RXQWU\ 'DWH
,QWURGX.HG
7DUJHW3UL.H
,QGH[
7DUJHW:LGWK 7DUJHW+RUL]RQ (V.DSH&ODXVHV $..RXQWDELOLW\RI
7DUJHW0LVVHV
7DUJ
$XVWUDOLD 6HS &RUH&3, 2YHURQHEXVLQHVV.\.OH
1RQH 1RQH -RLQWO*RYD
%UD]LO -XQ +HDGOLQH&3,
\HDU 1RQH ,VVXDQ.HRIRSHQOHWWHUWR0LQLVWHURI)LQDQ.HH[SODLQLQJWDUJHWEUHD.KDQG
PHDVXUHVWDNHQDQGWKHWLPHUHTXLUHGWREULQJLQIODWLRQZLWKLQWKHWDUJHW
*RYL.RQVXZLWK
&a