Speech by Dr Jens Weidmann, President of the Deutsche Bundesbank, in which he reflects on the experience Deutsche Bundesbank has made with forward guidance in the last few years, but he also discusses possible pros and cons of the second, more daring type of forward guidance. He closes with some remarks on monetary policy in the euro area.
Dennis Gabor, the British physicist who invented holography and won the Nobel Prize in 1971, noted that the future cannot be predicted, but it can be created.
It is worth investigating which monetary policy approaches allow the Eurosystem to respond vigorously in an economic downturn. But these policies have to be evaluated carefully in light of both potential benefits and costs. In his remarks, Mr Weidmann has been able to highlight a few issues on forward guidance.
He fully agrees with Christine Lagarde. Mr Weidmann says:
“The monetary policy strategy should always evolve in a way that best serves our mandate. Since our strategy has been in place since 2003, it may be worth collecting lessons from the financial crisis and the more recent past at the appropriate time.
“In my view, this should include, among other things, the question how to handle long-term risks to price stability arising from financial imbalances.”
As Claudio Borio once warned, economic lessons “are learnt, forgotten, re-learnt and forgotten again”. Laplace’s demon would know better.
Full speech on BIS
© BIS - Bank for International Settlements
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