SUERF Colloquia and Colloquia Publications 1969-2003 in Figures and Locations
Colloquium 7: New Approaches in Monetary Policy
Wiesbaden, September 1977.
President of SUERF and Chairman of the Colloquium: Raymond Bertrand Colloquium Book
Editors:J.E.Wadsworth and Franỗois Lộonard de Juvigny
Authors: Carlo D’Adda, Reino Airikkala, Nino Andreatta, Andrew Bain, Jacques Baudewijns, Horst Bockelmann, Hans W.J. Bosman, Cesare Caranza, Paul Coulbois, Jacques-Henri David, Herman J. Dudler, Economic Intelligence Department Bank of England, Research Department Banco de Espađa, Einar Forsbak, Leif Hansen, Banking Department Central Bank of Ireland, Warren D. McClam, Tommaso Padoa-Schioppa, Ralf Pauli, Peter Pauly, Jacques Pecha, Theo Peeters, Kurt Schiltknecht, Helmut Schlesinger, Jacques J. Sijben, Niels Thygesen, Martin N.C. Thomann, Uwe Westphal, Manfred Wilms.
Publishers:Sijthoff and Noordhoff, Alphen aan den Rijn, The Netherlands, 1979, xiv, 390 pp.
– In a nutshell...
“... It became clear that the views of the monetarists had gained acceptance -at any rate in part – over a wide field, especially during years when gathering inflation made less effective the customary remedies such as restrictive measures by way of interest rates, money market conditions and banking activity. Nevertheless, such views were far from being accepted in their entirety. Central banks generally, while agreeing with the importance of paying attention to monetary aggregates, stressed the need, in practice, for employing additional means of regulation and expressed doubts as to the effectiveness of simply controlling the money stock when, for example, inflation was being imported. Among academic writers, also, were some holding similar opinions ... Discussions covered such fields as using the most appropriate among the various monetary aggregates available and the means of regulation.” (John E. Wadsworth, Honorary Editor-in-Chief of SUERF, pp. ix-x)
“The use of monetary targets has in practice been influenced more by the force of events than by the new monetarism...” (Warren D. McClam, Deputy Manager, BIS, Basle. p. 70)
– Academic monetarist views on the theoretical foundations...
“(The emphasis on the theoretical foundations of monetary policy) is closely related to the fact that the post-war macro-economic stabilisation policy, based on the Keynesian analysis, has not been successful in curbing the inflationary process during the past decade ... We cannot endorse the philosophy of ‘learning to live with inflation” ... In this way habituation to the inflation phenomenon becomes an independent driving force in the inflationary process. In the long-run a return to sound and stable monetary relations will become more difficult costly and painful ... The permanent and increasing inflation of recent years in the Western-world is caused in essence by a continuous and even an accelerating growth of the money supply in relation to the growth of real production. The inflationary process is essentially a monetary phenomenon which cannot come into effect unless the monetary authorities provide the required ‘monetary fuel’ ... A policy of gradually reducing the monetary growth rate as to become commensurate with the real growth rate of the economy, may contribute to an elimination of the destabilizing impact of inflationary expectations. Wage negotiations and price-setting by firms should not be determined by the rate of inflation in the recent past, but rather by the lower rate of inflation which will be allowed by monetary authorities in the near future.” (Jacques J. Sijben, Economist at the University of Tilburg, pp. 13, 37)
“The rational expectation hypothesis implies that economic units are aware of the effects of an excessive expansion of the money stock. They anticipate the inflationary impact of such a policy. As a result, an excessive monetary policy does not stimulate the growth of real variables in the economy, not even in the short run. It leads only to inflation. Therefore, given rational expectations, a monetary policy using quantitative target variables, and adjusting the growth rate of these variables to the long-run expansion path of real economic activity, seems to be the most appropriate monetary policy in our present situation.” (Manfred Willms, Professor of Economics, Christian-Albrechts- University of Kiel, p. 63)
– The Bundesbank as the reference for practical monetary policy?
“The Bundesbank has decided to use primarily a quantitative target ... The movement of the money stock serves as an indicator of the effects of the central bank’s measures on economic activity. On this point we are guided less than we used to be by interest rates, changes in interest rates are not only the outcome of monetary actions, they may also be the result of market determinants or of a mixture of both ... Not very long ago, for instance, one commentator charged us with ‘hindering a policy which is modern in
conception by using outdated instruments’. For him the ‘monetarist’ slant of our policy is evidently not pronounced enough. Other observers fear precisely the opposite, namely that there is too much ‘monetarism’ in our approach; in their view we pay too little attention to current cyclical requirements ... The compromise – at bottom a pragmatic one – between steadying the monetary developments and an anti-cyclical orientation is evident from the practical policies pursued by the Bundesbank since 1975 ...
Money creation processes in the banking system can start in a variety of ways, and without any action by the central bank. This does not mean, however, that the central bank is powerless to influence the bank’s money creation ... (The) demand for central bank money is the connecting link between the central bank’s money creation and the money creation of the banking system. This is the point at which the central bank must exploit its monopoly of central bank money, by setting the conditions – if necessary, harshly – on which it is prepared to satisfy the banks’ demand for central bank money once it has arisen... You may well come to the conclusion that the practical formulation and the preconditions for the success of any monetary policy depend in a large measure on the political and institutional conditions prevailing in a country.
I am sure that our experience of controlling the central bank money stock cannot be transferred without difficulty to other countries; conversely, we are always initially assailed by doubt if people who fail to appreciate the institutional differences from other central bank systems recommend us to use these systems’ instruments... This does not mean that we do not examine them to see how far they can be used...” (Helmut Schlesinger, Member of the Directorate of the Deutsche Bundesbank, Frankfurt/Main, pp. 7, 8, 9, 10, 11)
“La première (‘vérité’), c’est que la crédibilité et donc l’efficacité de toute intervention monétaire dépend d’abord des structures bancaires et financières du pays ó elle est appliquée. Condamnée par exemple à soutenir des établissements fragiles dont la mise en liquidation pourrait être à l’origine d’une crise bancaire, la Banque centrale ne peut avoir en France la même autorité sur les banques que son homologue allemande qui trouve en face d’elle des interlocuteurs à la fois plus homogènes et moins dépendants de ses interventions. La seconde (‘vérité’), c’est qu’en agissant sur le comportement des banques et sur la disponibilité du crédit, les autorités monétaires déplacent tous les éléments de l’équilibre économique national suscitant par là une multiplicité de réactions émanant de tous les agents économiques et, de ce fait, difficile à prévoir. C’est pourquoi la politique monétaire est du domaine du contingent. Adjuvant indispensable à la régulation de la conjoncture, elle ne peut à elle seule tenir lieu de politique économique.” (Jacques-Henri
David, Inspecteur des Finances, Ministère de l’Economie et des Finances, Paris, p. 289)
“The central bank getting the same independence as the courts and separate from national treasuries! (Reference to the All Saints Manifesto of November 1975: we must give the monetary authorities the same independence from political control and the same responsibility to the rule of law we have accorded the judicial system. It follows that the new institution or institutions should be removed from the jurisdiction of treasuries, and monetary authorities should be appointed or elected for long periods of time if not for life...). It must be a wonderful dream for monetarists, and for central bankers;
a dream that in all probability will never come true in this way. But that the maintenance of the value of money would be greatly facilitated by a high degree of independence of the central bank is a thesis which I would like to support, and which I base, both on theoretical considerations and on the experiences of the Federal Republic of Germany.” (Hans W.J. Bosman, Professor of Money and Banking, University of Tilburg and Secretary General of SUERF, p. 261)
– Monetary policy in open economies and its coordination, particularly in the EEC
“Floating rates provide incomplete insulation from real external disturbances.
An open economy is open, no matter what its exchange rate regime (is). But flexible exchanges do, however, permit different long-term rates of inflation.
Mussa has drawn further attention to the fact that since exchange rate changes have real effects, at least in the short run, this makes such changes a concern of government policy. It even implies that governments can use exchange rates as policy instruments. The possibility has been recognized for some time as the experience of the thirties has demonstrated. But as is well known policy conflicts are bound to arise if everyone wants to devalue vis-à-vis everyone else The potential for policy conflicts, therefore, remains under a managed flexible exchange rate system and consequently also the need for policy coordination... Policy coordination and stability of exchange rates are in the first place matters of coordination of money supply policies, and not of exchange rate surveillance and intervention rules...” (Theo Peeters, Professor, Centre for Economic Studies, Catholic University of Leuven, pp.
199-200)
“There is an inbred scepticism in most European central banks and Treasuries towards the quantification of economic policy effects for the purpose of national public debate or exchanges in international meetings, even when the
historical experiences appear fairly well based in econometric work and in general accord with the views of policy-makers themselves. To some extent this scepticism is well-founded in the present state of knowledge on private investment, consumption, imports and other economic variables; but it is also a convenient protection against a better informed, though mechanical, interpretation of national policies by outsiders such as international colleagues ...
I would like to argue that there is a strong need for adopting an integrated approach at the EC-level to the coordination of national exchange-rate and monetary policies. In particular, it would appear that, without the focus on some declared objectives for exchange rates, clear guidelines for monetary policy coordination are not feasible...” (Niels Thygesen, Professor, Institute of Economics, University of Copenhagen, pp. 209, 214)
Colloquium 8: Europe and the Dollar in the World-Wide