Opening Remarks at Advances in Monetary Economics Conference
IMF News, July 13, 2020
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Bibliographic details
- Published: July 13, 2020
Context and purpose
- Speaker: Tobias Adrian, Financial Counsellor and Director of the Monetary and Capital Markets Department, IMF.
- Date: July 13, 2020.
- Event: Inaugural “Advances in Monetary Economics” conference; followed by the Michel Camdessus lecture to be given tomorrow by Thomas Jordan, the Chairman of the Swiss National Bank.
- Central theme: Appropriate monetary policy in a “lower-for-longer” interest rate environment, made more urgent by the unprecedented COVID-19 shock.
Challenges identified with lower-for-longer rates and unconventional policy
- Persistent pre-crisis problems:
- Low inflation and low equilibrium real rates in advanced economies.
- Use of unconventional monetary policies to support growth and inflation once policy rates were constrained by the effective lower bound.
- Need to better understand many aspects of these unconventional policies despite a considerable literature on their effectiveness.
- Unintended consequences and risks:
- Search for yield.
- Buildup of leverage.
- Spillovers to emerging markets, notably through capital inflow surges and the risk of reversals.
- COVID-19 intensified policy responses and challenges:
- Advanced-economy central banks expanded balance sheets unprecedentedly.
- The Fed implemented measures including lending to securities firms, backstopping MMFs, and direct lending to banks, major corporate employers, and SMEs.
- A number of EM central banks embarked in unconventional policy measures for the first time.
- These actions improved market functioning and eased financial conditions, but significant challenges remain ahead.
IMF engagement, capacity building, and agenda
- Strengthening dialogue:
- Fund committed to engaging with academia and central banks; launch of the new annual conference accompanies the Camdessus lecture.
- Enhancing analytical capacity:
- Fund has produced extensive work on:
- Experience and prospects for unconventional monetary policy.
- Effectiveness of negative interest rates.
- Medium-term risks to growth and stability due to accommodative conditions and the lower-for-longer interest rate environment.
- Monetary policy transmission in emerging market- and developing economies.
- A new Monetary Policy Modeling Unit has been formed to allow deeper analysis and strengthen technical dialogue with central banks.
- Research and policy focus going forward:
- Macroeconomic policy mix under lower-for-longer interest rates.
- Financial stability risks.
- Spillovers.
- Potential distributional effects.
Integrated policy framework for emerging markets and open economies
- Objective: Understand complementarities among policy choices without altering the role and objectives of monetary policy.
- Framework purpose:
- Compare costs and benefits of four tools to help stabilize economies exposed to domestic and external shocks:
- Monetary policy.
- Macroprudential policy.
- Exchange rate interventions.
- Capital flow measures.
- Capture how these tools interact with each other and with country circumstances (the “integrated” aspect).
- Recent work: Publication last week of three key working papers on this topic.
Conference role and outlook
- Conference purpose: Platform to question conventional wisdom, evolve views and frameworks, and push forward thinking on monetary policy in changing realities.
- Expectation: Impressive lineup of speakers and papers to advance discussion across the issues highlighted.
Source: Opening Remarks at Advances in Monetary Economics Conference, Tobias Adrian, July 13, 2020.