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BNM Monetary Policy Conference 2017, 24 July 2017: “Monetary Policy 2.0?”

On 24 July 2017, Bank Negara Malaysia organised a Monetary Policy Conference with the theme “Monetary Policy 2.0?”. The conference aimed to provide a platform for a robust exchange of views on the contemporary and future monetary policy approaches and frameworks. The one-day event was attended by 158 participants comprising central bankers, academics, and economists from multilateral institutions, the Government, think tanks and the private sector.

The day’s proceedings were structured into two sessions, with the morning session focusing on “What lies beyond price stability?”, and the afternoon session on “How is technology changing the operating environment for monetary policy?”. Each session featured a keynote address and a panel discussion. It was a great privilege for this year’s conference to have Dr. Maurice Obstfeld, the Economic Counsellor and Director of Research at the International Monetary Fund (IMF), and Mr. Yves Mersch, Member of Executive Board of the European Central Bank (ECB), as the two keynote speakers.

In his welcoming remarks, Deputy Governor Dr. Sukhdave Singh highlighted that the two sessions would serve the goal of the conference in understanding the implications for central banks generally, and monetary policy specifically, arising from developments since the Global Financial Crisis. He emphasised that the crisis has demanded for closer scrutiny on the capacity of narrowly focused monetary frameworks (e.g. inflation targeting) to deliver long-term macroeconomic stability. Notwithstanding the widespread use of unconventional monetary policy in the post-crisis period, the current underlying framework for monetary policy formulation in the developed world has remained essentially the very same framework that oversaw the spawning of the financial crisis. Dr. Sukhdave also noted that technological developments, which have the potential to significantly change the operating environment of monetary policy, may further warrant a re-thinking in the future conduct of monetary policy.

Dr. Obstfeld’s keynote address for the morning session paved the way for a productive discourse on rethinking the overall monetary policy framework. He highlighted six precepts related to the specific roles of monetary policy in the pursuit of financial stability. Among others, the precepts are: price stability is a prerequisite for financial stability – there is no trade-off; the quantitative impact of interest rates on financial-market excesses is uncertain; and financial stability is not guaranteed by price stability or flexible exchange rates, but should be addressed directly through regulatory tools, including macroprudential measures. Dr. Obstfeld concluded by concurring with the emerging consensus, that monetary policy that is firmly oriented toward medium-term price stability remains a necessary but insufficient condition for overall economic stability, especially evinced by crises in recent decades.

The subsequent morning panel discussion covered specific issues, such as the importance of recognising monetary policy interaction with both financial stability and fiscal sustainability, as well as country experiences with spillovers from ultra-expansionary monetary policy. Beyond these issues, the session also brought to the fore the inadequacy of current monetary policy frameworks in handling complex and multi-faceted risks. Towards this end, central banks should avoid creating financial risks by adopting a longer policy horizon and being cognisant of risks and perverse incentives. The panel also discussed the possibility for central banks to consider broader implications on welfare and inequality by placing more holistic objectives for monetary policy, namely ones that are less precisely defined in terms of a single price objective.

The morning session was followed by a luncheon address on monetary policy autonomy by Governor Muhammad bin Ibrahim. He highlighted that in times of greater global integration and inevitable policy spillovers, monetary policy autonomy is still attainable. The pre-requisites for monetary policy autonomy for central banks would include having a broader policy toolkit, considerable agility, pragmatism, and sufficient space to implement the necessary policies. Speaking for many emerging economies, Governor Muhammad concluded with a considered appeal to multilateral institutions to respect the tough but necessary choices that domestic policymakers judiciously make. Policymakers in the emerging economies are well-positioned to make these choices given their greater understanding of domestic conditions.

In the afternoon, Mr. Mersch in his keynote address outlined three useful principles for central banks to embrace in facing the uncertainties of technological changes. First, to adapt policies to take into account the impact of technology-driven changes, such as that on price-setting behaviour, consumption patterns and the creation of new products and services. Second, to adopt appropriate technology that supports the various functions and tasks of a central bank, particularly in payment systems. Third, to anticipate technological risks that may transcend beyond the physical realm (e.g. cybersecurity).  

Finally, the afternoon panel discussion advanced the latest central bank thinking on the potential for Central Bank Digital Currency (CBDC) and the use of Big Data in transforming future monetary policy approaches and central banking. The debate on CBDC began by highlighting its motivations and benefits, including improving central banks’ ability to stabilise inflation and business cycles, while reducing some financial stability risks and improving efficiency in payment systems. Conversely, it was argued that the overall motivation for the introduction of CBDC may not be compelling enough given the operational complexities and uncertainties, thereby cautioning central banks to proceed carefully and incrementally. With regards to Big Data, central banks are increasingly aware of its potential ability to provide complementary and timely measures of different aspects of the economy, which can solidify a bottoms-up approach in policy-making. However, it was proposed for the usage of Big Data to be focused on improving the current measurements of different economic variables, rather than for forecasting purposes. Central banks should also pay close attention to the source, standardisation process, and quality of the data, with the goal of utilising Big Data only in ways that would result in more effective policy making.

Please find below the proceedings from the conference. All the documents here are in Portable Document File (PDF) format. In order to read these documents, you will need Adobe™ Acrobat™ Reader™, which is downloadable for free from the Adobe™ Web Site. [Link]

Programme


Welcoming Remarks

Sukhdave Singh, Bank Negara Malaysia 

 

 

Morning Session: “What Lies Beyond Price Stability?”

 

 

Morning Keynote Address

“Two Trilemmas for Monetary Policy”

 

Maurice Obstfeld, International Monetary Fund [Transcript] [Presentation]

 

 

Morning Panel Discussion

Moderator

Hans Genberg, The SEACEN Centre

Panelists

Athanasios Orphanides, MIT Sloan School of Management [Presentation]

 

Fritz Zurbrügg, Swiss National Bank [Presentation]

 

Sebastián Claro, Central Bank of Chile [Remarks]

 

Sukhdave Singh, Bank Negara Malaysia [Presentation]

 

 

Lunch Session

 

Lunch Address

“Monetary Policy Autonomy: Intricacies, Instruments and Independence”

 

Muhammad bin Ibrahim, Bank Negara Malaysia [Transcript]

 

Afternoon Session: “How is Technology Changing the Operating Environment for Monetary Policy?”

 

 

Afternoon Keynote Address

“Central Banking in Times of Technological Progress”

 

Yves Mersch, European Central Bank [Transcript]

 

Afternoon Panel Discussion

Moderator

Abdul Rasheed Ghaffour, Bank Negara Malaysia

Panelists

Michael Kumhof, Bank of England [Presentation]

 

Ben Fung, Bank of Canada [Presentation]

 

Per Nymand-Andersen, European Central Bank [Presentation]

 

Roberto Rigobon, MIT Sloan School of Management [Presentation]