16 The pass-through of exchange rate changes through the supply chain into UK CPI inflation is a protracted process, indicative of rich pricing frictions in the market for imported  13  See the discussion in Greenslade, J, Millard, S and Peacock, C (2008), “How has globalisation affected inflation dynamics in the United Kingdom?”, Bank of England Quarterly Bulletin, Q3. Peacock and Baumann (2008) find evidence of a flattening of the UK Phillips Curve since the mid 1980s, conditional on treating the UK as a closed economy. When import prices are allowed to enter firms’ costs, however, the authors find no change in the Phillips curve slope comparing 1965-2007 and 1985-2007. Peacock, C and Baumann, U (2008), “Globalisation, import prices and inflation dynamics”, Bank of England Working Paper No. 359. Groen and Mumtaz (2008) likewise find little evidence in changes in the structural parameters of UK Phillips Curves. Groen, JJJ and Mumtaz, H (2008), “Investigating the structural stability of the Phillips Curve relationship”, Bank of England Working Paper No. 350. 14  Source: Richard Freeman (2006), ‘The Great Doubling: The Challenge of the New Global Labor Market http://scholar.harvard.edu/freeman/publications/great-doubling-challenge-new-global-labor-market. 15  These measures weight countries by their share of UK-imports, and demonstrate the negative price pressure facing the UK today from slack in our trading partners. 16  Gopinath, G (2015), “The International Price System”, mimeo at this Symposium. 4  BIS central bankers’ speeches  intermediate and final goods. These effects span the policy horizon, and therefore affect the appropriate stance of monetary policy.

Chart 2 International synchronisation of inflation (headline and core) Headline inflation  Core inflation  average pairwise correlation  0.6 0.5 0.4 0.3 0.2 0.1  0.0 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 Notes: Average pairwise rolling (15 years) correlation of seasonally-adjusted quarterly headline and core inflation. The country-specific average pairwise correlation of a time series xi in country i (pcix ) is the average of the contemporaneous correlation between xi and xj for all i ≠ j. The average pairwise correlation (pc x ) is computed as the average of the pcix across all countries and, as such, provides a measure of international synchronization of 𝑥𝑥. Source: OECD, Global Financial Data, DataStream, National sources, and Bank Staff calculation. 8  BIS central bankers’ speeches  Chart 3 International synchronisation of inflation (headline and core) and policy rates at different frequencies  Notes. Rolling average (15 year window) of the bilateral dynamic correlations of an unbalanced panel of 46 countries. Dynamic correlation is a function of the cross-correlation and autocorrelation functions of two series that breaks down their comovement into different frequencies. “Cohesion” is the average of bilateral dynamic correlations in the sample. See Croux 26 et al. (2001). Source: OECD, Global Financial Data, DataStream, National sources, and Bank Staff calculations. 26  Croux & Mario Forni & Lucrezia Reichlin, 2001. “A Measure Of Comovement For Economic Variables: Theory And Empirics,” The Review of Economics and Statistics, MIT Press, vol. 83(2), pages 232-241, May.