mervyn king : no country is an island speech by mervyn king, deputy governor of the bank of england, at the institute of petroleum annual dinner, london, 21 february 2001. * * * no country is an island - in terms of economics, if not geography. trade and capital flows link all the economies of the world. since 1970 the volume of world trade has increased more than five - fold. globalisation is not a slogan ; it is a fact. the economic winds can rapidly alter direction bringing significant changes in the economic weather. what happens in the world economy is of great importance to your industry. but no business in a country, such as the united kingdom, which exports and imports almost a third of its national output each year, can ignore global economic developments. recent events have reminded us of just how volatile that economic weather can be. only a few short months ago, the united states was experiencing rapid economic growth at a rate which surprised us all. the new frontier had become the new economy, and some had forgotten that economic downturns are a regular feature of a market economy. share prices had reached levels four times that of a decade earlier, and the price earnings ratio of america's top 500 companies was over forty, an unprecedented level. now, after a swift and sharp fall of business and consumer confidence, the business cycle appears to be alive and well, and living in the united states. share prices have fallen by around 20 % since their peak in march 2000 ; and technology stock prices have fallen even more, by 50 %. forecasts for economic growth in the united states for the coming year are still being revised down and are only one half of their levels of a few months ago. equally, only a few months ago, some currency traders were openly deriding the euro. the euro reached a low of 0. 82 to the dollar - the lowest level for the euro or its antecedents for over 15 years. since then, however, the euro has recovered, and the euro economy itself appears to be relatively stable. in the other major industrialised part of the world economy, japan, output has barely risen in recent years. real gdp in japan has grown by only just over 1 % a year over the past decade, compared with over 4 % a year over the previous ten years. unexpected changes in the economic weather have also had a significant impact on the oil market. oil prices rose from below $ 10 a barrel ( for brent crude ) in

, looking at what central banks have actually said about future policy, the boundary between the two is less clear in practice than in the theory. even a fully discretionary policymaker – one who can ’ t credibly commit to future policy decisions – may react slightly differently to incoming data around the lower bound. as i pointed out in the introduction, there may be other changes in the economy ( less predictable productivity growth, for example ) that also warrant a change in the “ reaction function ”. so, if a statement signals some shift in how policy might respond to the economy, that doesn ’ t necessarily make it “ odyssean ”. nor does commitment mean you ignore entirely what ’ s going on in the economy : the blue policymaker is still “ data dependent ” in some sense, just less so – less responsive to inflation overshoots in particular – than the red. so although i ’ ve been stressing the contingent nature of “ delphic ” guidance, and the relative invariance in the case of commitment, it ’ s not a rigid distinction. in any case, perhaps there ’ s always some room for interpretation when it comes to language. that said, i think one can still outline some broad parameters – things that colour a statement more in one shade than another – that can help distinguish the two. for example, odyssean, committed guidance is probably more likely to refer to dates – a time - frame for low interest rates – than to economic conditions alone. if it does tie future policy to economic variables it may explicitly pick out inflation expectations ( as odyssean guidance is explicitly designed to raise them ). more generally, it will actively seek to convey a more dovish stance relative to incoming data. without these things, a statement that simply says “ we expect such - and - such a policy to be appropriate given the current outlook ” doesn ’ t seem to me to qualify, especially if it goes on to stress the dependence of one on the other. the same goes for forecasts of future interest rates based on the latest projections for the economy. these are just an effort to explain more about the “ reaction function ”. on these grounds, and even with a fairly liberal interpretation of these requirements, it ’ s difficult to pick out many episodes that clearly count as pre - commitment. perhaps the us fed ’ s communications during and in the years after the financial crisis came the closest, though the shift to more odyssean - like guidance