lorenzo bini smaghi : an ocean apart? comparing transatlantic responses to the financial crisis speech by mr lorenzo bini smaghi, member of the executive board of the european central bank, at the panel session “ taking stock : global implications of transatlantic differences ”, of the conference organised by bank of italy, bruegel and the peterson institute for international economics, rome, 10 - 11 september 2009. * * * this conference has examined in detail how policy authorities on both sides of the atlantic have reacted to the financial crisis. i won ’ t consider in depth the events of the past two years. let me just say that central banks on both sides of the atlantic have responded swiftly and decisively, especially since september of last year, working very closely together, even to the point of coordinating some of their actions. indeed, you doubtless remember that the first interest rate reduction in the easing cycle, on 8 october 2008, was a coordinated move by a number of major central banks. market interest rates are now at very similar levels. for instance, the money market interest rates at the twelve - month horizon both in the us and the euro area are currently just below 1. 3 %. 1 central banks on both sides of the atlantic have also resorted to a number of non - standard measures to provide additional support and stimulus to their respective economies. the choice and design of those measures reflects the structural characteristics of those economies. the non - standard measures implemented by the ecb have focused primarily on banks, as banks are the main source of funding in the euro area economy. in the us, however, market - based financing plays a more important role. the ecb ’ s framework for non - conventional measures comprises five main building blocks : meeting in full the banks ’ liquidity requests at a fixed rate ; expanding the list of assets eligible as collateral ; lengthening the maturities of long - term refinancing operations ; providing liquidity in foreign currencies ; and, since july, supporting the financial market by making outright purchases of covered bonds. these measures are by now well known. we consider that they have achieved the desired objectives, in particular by reducing the spreads in the money market, flattening the yield curve over the short - term horizon and restarting the market for covered bonds – an important instrument through which banks finance themselves. so much for recent measures. today, though, i ’ d like to look ahead and talk about a topic which has been widely discussed

food items. the pattern for pulses appears to conform to perceptions about sensitivity to monsoons. at least in the most recent months, the inflation rate for pulses has dropped significantly – in fact, below the overall rate of food inflation. however, the inflation rates for the other two items continue to be above the overall food inflation rate. the rate for eggs, meat and fish has dropped a bit, but the rate for milk appears to have its own dynamic. slide 2 inflation rates of proteins of course, this is not sufficient to draw any inferences about the structural nature of protein price inflation. slide 3 presents the results of the decomposition of the three price level series. the red lines capture the structural components and the picture is unmistakable ; the prices of all three protein sources are on a strong upward trajectory, which, is occasionally offset by favourable cyclical factors, particularly in the case of pulses, given the direct impact of monsoon performance on pulse production. slide 3 structural components demand drivers the 61st round ( 2004 – 05 ) of the national sample survey is the most recent large sample data available for consumer expenditure. though dated, it provides a basis for analyzing the relationship between household affluence and expenditure on various items. in the course of this project, we have estimated price and income elasticities for a variety of food products, including the three categories on which this presentation is focused, at several levels of disaggregation – by item, by state and by income fractile. the results will eventually be published in a detailed report, but given the occasion and time constraints, i would just like to convey a sense of what we are attempting to do. essentially, it is the analysis of inflection points : what is the threshold level of income ( or, in this case, household expenditure ) at which the composition of the diet changes significantly. a national aggregate is not a very precise way of doing this, given the enormous variations in factors that drive consumer behavior across the country, but it serves to illustrate the approach. slide 4 presents the relationship between monthly per capita expenditure ( mpce ), which is of course a proxy for household affluence and the level of spending on the three protein sources that we are discussing. interestingly, the expenditure on milk and milk products is higher than that on pulses in all expenditure fractiles of the urban population, while it begins to dominate pulses at a fairly low fractile in the rural population. eggs, meat and