ECB’s Šimkus: Shouldn’t Rely Completely on Models, Judgment of Policymakers Most Important

24 April 2025

By David Barwick – WASHINGTON (Econostream) – European Central Bank Governing Council member Gediminas Šimkus on Thursday criticised excessive reliance on economic models for monetary policymaking.

Speaking at the Reinventing Bretton Woods conference on the margins of the spring meetings of the IMF and World Bank, Šimkus, who heads the Bank of Lithuania, said that there were three ‘ingredients of successful monetary policy’.

One of these was a ‘flexible or agile tool kit’, he said. Under normal circumstances, a central bank’s standard instrumentarium was sufficient, ‘but what we understood in these difficult times … is we need to be quick … in order to react’ to the situation.

In this context, he cited the manner in which the ECB’s asset purchase programme was ‘smoothly adjusted’ to the pandemic emergency purchase programme when the pandemic hit, as well as the transmission protection instrument.

Another element of successful monetary policy was not depending completely on models, he said. These suffered from the flaw of being based on past experience, he said.

‘So central banks and monetary policy should not be only about the models’, he said. ‘It should be also based on the experience and the judgment of the policymakers.’

Judgment should be weighted more heavily, he said.

The third aspect of effective monetary policy was making clear that monetary policy was not the only

In other comments, Šimkus said that he was of ‘the camp of those who take the view that central banks should look through temporary supply side shocks.’

In considering the current state of ECB monetary policy, Šimkus said that he preferred to ‘abstract from all those many, many scenarios’ of what could happen, and consider the facts on the ground.

The latter came down to the ‘huge uncertainty’ that could lead, he said, ‘in many cases, into an even more deflationary environment’.