Suchergebnisse

The DIW is the largest and oldest economics institute in Germany and conducts research in many fields of economic analysis. In this contribution to the conference celebrating the 80th birthday of this important institution I feel stimulated to address a few analytical issues, raising questions rather than providing answers, and without necessarily limiting the reasoning to predefined frameworks. The conduct of monetary policy faces challenges which are quite similar to those of economic forecasting, with some additional complications. As Niels Bohr, a Nobel laureate in Physics, used to say: "Making predictions is very difficult, especially about the future." I would add: "Not only about the future". Forecasting the direction in which the economy is going is essential for monetary policy, but not sufficient as knowledge about the starting position, and possibly even the past trajectory is required. This is less simple than one would think, because some key variables are not observable. My contribution is organised as follows. I will first try to explain why forecasts are so important for central banks. I will also make a digression on some (unanswered) questions in monetary policy making. I will then examine how forecast errors may affect the monetary policy decision making and how the assessment of risks is at least as important as the central scenario of the forecast.

We find the litmus test is whether governments gain access to a safe source of funding in a 'domestic' currency. Of the list of solutions considered, both Purple bonds and E-bonds can meet this criterion.

Difficulties in implementing effective liquidity support – to counter speculative attacks – may partly explain why regional exchange rate agreements crawl regional trade integration. Our novel analysis of the European Monetary System confirms that liquidity support was provided under the discretion of the anchor country (Germany), and was indeed asymmetric across member countries and/or periods. In particular, it was less forthcoming (i) to countries further away from Germany (less politically influential there), (ii) to larger countries (interfering more with the Bundesbank's monetary control) and (iii) during periods when German inflation accelerated (and the Bundesbank needed a firmer grip on liquidity).

The article analyses the effect of the move to EMU on the procedures through which co‐operation between authorities in charge of budgetary and monetary policy takes place. The first section examines the situation prior to EMU in the Member States on the basis of a questionnaire concerning the modalities of the formal or informal dialogue between the national central banks (NCBs) and the treasuries. The second section takes into consideration the current situation, based on the experience acquired in the first year of EMU and set against the provisions of the Treaty. The comparison between the two situations suggests that something has been lost in the move to EMU, and that there is scope for further improving the dialogue and co‐operation between budgetary and monetary authorities in EMU. Some suggestions are then proposed in order to bring the current euro‐zone situation closer to the one prevailing in most countries prior to EMU.