“We are operating in waters largely unexplored, but the important thing is that in every case we were able to define the monetary policies that are effective to cope with a series of shock unprecedented and we have done that by relying on the best information that the research could provide”. The president of the Ecb Mario Draghi took the opportunity of the first annual conference of the central bank on economic research, which is taking place in Frankfurt, in order to respond to the criticisms coming from the political sectors, not only the germans and the choices to the most daring monetary policy to avoid the trap of deflation in the euro area.
This afternoon the Dragons will be in the Bundestag for a comparison – the first one with the German parliamentary representatives since October 2012, when the hot topic was the plan of the purchase of government bonds Omt, then never applied – this time in announcing lively. The dossier central today are the negative interest rates on bank deposits, introduced by the Ecb anti-deflation, but contested by the German banks, grappling with growing problems of profitability. A few days ago, the president of the Ecb has admitted that the negative growth rates are one of the causes of the lower profits of the banks, but certainly not the only one, and has pointed the finger at the excessive number of banks and branches in Europe. Today, with all probability, the deputies of the German Parliament, in a meeting behind closed doors which will be followed by a briefing of Dragons, certainly will raise the question.
The intervention of the Dragons this morning, does not contain substantial innovations on the choices the next monetary policy or provide guidance to the market. All the attention of the day is on the discussion with the parliamentary germans. These days the president of the central bank is talking a lot and today’s conference serves to Dragons in order to highlight which are the areas of research needed to help the Ecb to perform its job. Areas that reflect the questions on the reasons and consequences of a monetary policy that according to some (the Bundesbank for example) is at the limit of the respect of the mandate independence from governments and the mandate for the price stability.
The real obstacle for the Dragons is the election environment in Germany
Draghi does not say so explicitly, but if you take it with a view too mechanistic criticism, as if the armamentarium at the disposal of a central bank, and the intensity of its use depended on economic situations and financial variabilissime. “To achieve our inflation target, we had to deploy a wide range of new measures, some of which were unprecedented in the euro area and we had to act more quickly than the academy was able to produce the result that our work was based on the internal research of the Ecb”.
In essence, the Ecb had no choice but to “act and do research at the same time”. Now is the time for the academy work, which “helps us to evaluate what we have done, to offer analysis that we prepare for the future.” It should be a “poll”. While it blooms – and rightly so – the literature that puts on the bench of the accused economists, which mostly have underestimated the systemic risks and have not seen the accumulation of the factors of the crisis that engulfed first the Us and then Europe, the Dragons move the ball forward. And sheds light on three fields of inquiry that reflect, however, the unsolved problems in the current phase. The first is the interaction between monetary policy and other policies, that he himself has recently called “independence in interdependence”.
The reasoning is political, not new, is that the Ecb can act, that can parry the blows of deflation on the economy to re-establish the dynamics of prices in the direction of 2%, however, if governments are standing still it’s like filling the sea with a spoon. In economic terms, in order to move interest rates away from the zero area, “we need structural reforms to increase potential growth in the euro area and to climb so the long-term interest rates”. So you are defending, however, also German savers obsessed by cuts to the yields on their savings. But what are these “structural reforms”, which are the most important ones, knowing that all of them are “politically difficult”? Here we get to the problem of the composition of the political budget, much more important than the flexibility fragmented in decimal year-on-year.
The second part of the analysis concerns the functioning of the monetary policy in a context of post-crisis: the research so far is mainly in charge of financial intermediation and its role in the dynamic macro-economic: new powers of the Ecb are to be investigated the interactions between regulation macro-prudential supervision, micro and monetary policy. Finally, the balance of monetary policy instruments in terms of effectiveness and fairness. “We know that the failure of the action of central banks during the crisis would have led to distributional effects not only on the assets of the debtors but also on the most vulnerable of our society who are disproportionately affected by unemployment, but little do we know about the distributive consequences of monetary policy instruments in non-conventional, we have used both with respect to their impact in the medium term”.
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