Announcing a new semi-structural model being developed at the ECB, I enumerate the features that a good macroeconomic model for policy analysis should have. DSGE models do not fully fill all the criteria. That they have been evolving with lots of ad-hoc features to better fit the data, is in itself an admission of the limitations of their purw vwrsions.
In a speech on May 4th 2018, I analysed the past and future of ECB´s monetary policy. I distinguished four phases in past policy, portraying the ECB evolution from an almost monetarist central bank to a modern one. I discuss the present challenges, criticize the concept of the so-called “natural rate of unemployment”, the problems with the Phillips curve and possible changes to the monetary framework of major central banks, a subject I address in another text in more detail.
A text from May 2018 at the ECB and its Watchers Annual Meeting. I address the issue of monetary policy not being suitable to address serious financial stability concerns and why macroprudential tools are essential for that purpose. Following Lars Svensson methodology, the text shows an empirical application to the euro area, illustrating the costs of using monetary policy for financial stability purposes. Only in extreme circumstances should monetary policy be used to contain financial instability concerns.
In this intervention of 2017 at the European Economic Association I addressed the issue of inequality and macroeconomic theory and policy. The neglect of this perspective has began to be corrected, particularly in the context HANK models. I also wrote about empirical evidence about in«equality and monetary policy after the crisis. When all effects of policy are considered developments in Europe have different in Europe in comparison with the US. Inequality is now recognised as a major problem in advanced economies, being a factor in secular stagnation. Little is being done in terms of policy to correct the situation. I ended with this quote from Kenneth Arrow: “The world is indeed full of injustices and the writings of economists full of attempts to disguise them”. Unfortunately, this has continued to hold true for a long time but, hopefully, much has started to change over the last few years in the aftermath of the crisis.
This is a lecture from May 2017 on the future of monetary framework. I have evolved on some of the discussed issues. (e.g. on negative rates,) but I find the text still useful. I concluded then that the strategy of flexible inflation targeting also works for the euro area and can remain
central to any future monetary policy framework. However, one of the lessons from the crisis is the need for better mechanisms to mitigate financial stability risks with central banks being given more macroprudential tools to complement their policy toolkit. In part, the ECB’s new competences for macroprudential policy, albeit incipient, will certainly help in that direction.
This text is dated from April 2016. There was then widespread disappointment with the 8 years of lackluster recovery. Then 2017 was suddenly a brighter year only for 2018 to disppoint early expectations. Doubts about secular stagnation in advanced economies still topical. In the text I warned that “Advanced economies must either radically change their economic prospects by generating growth and jobs, or they will be forced to adjust their social systems in uncharted ways.” Then, I discussed some of the hypotheses put forward in the literature to explain the determinants of this prolonged, low-growth period, I followed with reviewing some of the proposed measures to exit from the liquidity trap, including fiscal and structural policies. While each of these measures has specific benefits, they also all have limitations or are subject to constraints. I concluded that only an encompassing policy mix can deliver stability and prosperity.
A lecture at Warwick University in February 2015 about some fundamental concepts of the relationship between macroprudential policy and monatary policy
An old text from 2014 where I raised doubts about the idea that more finance is always good for economic growth.