Going forward, the monetary policy strategy should be designed in a way that ensures price stability in the face of great uncertainty. This will require it to be flexible enough to work well in different environments and react to new and unknown shocks, Bank of Finland Governor Olli Rehn stressed on Wednesday at an international monetary policy conference organised by the Bank of Finland in Helsinki.

The international conference, held for the third time, discussed monetary policy in low and high inflation environments.

In his speech, Rehn discussed the exceptional inflation dynamics of the past crisis years and reflected on the main themes of the ECB’s upcoming monetary policy strategy review.

 “For me, the experiences of recent years have, above all, highlighted the crucial role of inflation expectations in the making of monetary policy. Likewise, they have underscored the importance of a firm commitment to a medium-term inflation target in line with our strategy,” Rehn said.

Monetary policy analysis to support decision-making

In his speech, Governor of the Bank of Italy Fabio Panetta spoke about the outlook for monetary policy. According to Panetta, the main risks that the euro area may face in the medium term are a new wave of geopolitical shocks and increased political uncertainty within countries. Panetta expects, however, that, barring new upheavals, we will soon transition from the saga of the “last mile” to the reality of the “first smile” and the restoration of price stability.

Philip R. Lane, Chief Economist and Member of the Executive Board of the ECB, on the other hand, highlighted the role of modern monetary analysis at the ECB. According to Lane, extensive monetary analysis helps policymakers to form a better overall view of economic developments and to take into account the nexus of money, supply and demand of credit, and the real economy.

“Through expanding computation capacity and new machine learning techniques, the improved availability of granular data on financial intermediation is further broadening its scope and the relevance of its findings. For these reasons, monetary analysis plays a central role at the ECB,” Lane said.

In her speech, Annette Vissing-Jørgensen, Senior Adviser, Federal Reserve Board, spoke about the different factors that influence the optimal size of central bank balance sheets and how these factors differ between the euro area and the United States.  

The event also included a topical discussion on monetary policy frameworks in low and high inflation environments. Participating in the discussion were Signe Krogstrup, Governor, Danmarks Nationalbank, Mārtiņš Kazāks, Governor, Latvijas Banka, and Hong K. Bahng, Director, Bank of Korea. The discussion was chaired by Tuomas Välimäki, Member of the Board, Bank of Finland.

Governor Olli Rehn’s speech 

Photos from the conference