A nice speech topic by Jean-Pierre Danthine of SNB.
Today, I will reflect on what monetary policy can and cannot do. I would like to emphasise where central banks’ powers and responsibilities end and where those of fiscal policy and the private sector begin. “Why is he focusing on this now?” I hear you ask. “We are in the midst of a crisis. Shouldn’t he be emphasising what central banks can do, instead of what they cannot?”
My answer to you is this: while the monetary policy measures taken in recent years have had a stabilising effect, today, monetary policy has acquired a degree of prominence that could lead to its powers and its reach being overestimated. Central banks are far from almighty and, in efforts to emphasise this, I will review the various policy options at the zero lower bound and the risks associated with the measures currently in place. I will first examine the issue in universal terms, before concentrating on the very unusual case of Switzerland.
What follows is how central banks can basically look only at price stability and cannot do things in fiscal policy domain:
In closing, I would like to summarise my message. The unconventional measures the SNB and several other central banks continue to implement are tailored responses to exceptional circumstances. Their impact should nevertheless not be overestimated, and the associated risks must be recognised. Central banks are the guardians of price stability. Taking the broad economic situation into consideration, they can promote conditions that are conducive to growth. But central banks are not almighty. Monetary policy does not create wealth in and of itself, only financial and economic actors can harness the very best of their innovative, technological and creative talents to generate value and promote sustainable growth.
Fair enough.
However, the problem has been all along 2000s we have been made to believe central banks are temples and central bankers ae god. All ills of the economy could be treated by the invisible hand of the god (read central banker)..
The crisis has been a good wake up call..
