ECB’s Lane: Selected Quotes From Panel Participation

14 June 2024

By David Barwick – DUBROVNIK, Croatia (Econostream) – Following are selected quotes from European Central Bank Executive Board member Philip Lane on Friday, speaking on Friday during a panel discussion of the Dubrovnik Economic Conference:

- ‘We analyse monetary policy transmission a lot, and we analyse our forecasts and forecast errors a lot.’

- The ECB was ‘fairly resolute in not publishing a forward policy path, in not doing a dot-plot. Of course we look at many policy simulations.’

- ‘How can we express our collective uncertainty? So, there’s always a risk assessment in the monetary policy statement, and right now we’re listing the risks, the inflation risks: “Here are some upside risks, here are some downside.” So we are saying, “Here’s what’s on our mind.” … I think that sometimes it’s important to say there’s a balance of risk … but it really goes back to the humility question. I mean, we don’t know enough about the distribution of inflation around the baseline to say, “Well, we know for sure it’s all in one direction, or we know for sure and here’s the scale of it.” So, this is why we do think it’s not helpful to dwell upon the forward policy path, even under the baseline. Cause what is the [probability] of the baseline coming true? There can be all sorts of shocks in the coming weeks and months. Those who need to know the baseline can look at the market curve, they can look at the survey of monetary analysts. There’s many ways, if you need to say, “Oh, where do you think policy’s going?” You have many options to consult. … It would send the wrong signal if the ECB said, “Well, here’s where we think rates are going.” It suggests more certainty than is in the data, I think.’

- ‘An interesting issue for monetary policy is, if you know supply should be recovering in the next year or two, if you believe monetary policy works with a transmission lag … what should be going into your reaction function? Is it today’s inflation? Inflation at t+1? t+2? And … what is on the left side? Is it today's policy rate? Is it the average policy rate over the next couple of years? … And it also helps to bring in the balance sheet. Because clearly, we raised rates in July 2022. But from December ’21 to July ’22 the yield curve moved a lot in anticipation. And that was part of the response. So, then you can come back to the question … some people have brought up – and of course it’s going to be brought up for a long time to come – is, under uncertainty, when is the right time to move? … If the ECB knew in 2021 the outturns for inflation in ’22 and ’23, of course the ECB would have moved earlier. If you limit the ECB to what is in the forecast, then the model suggests that essentially, compared to moving in summer of ’22, maybe we could move in March ’22. March ’22, just after the war had erupted, the March ’22 meeting, we published a range of scenarios about Ukraine. And so this goes to the amount of downside risk.’