Draghi urges open-mindedness at central banks
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Draghi urges open-mindedness at central banks

Speaking yesterday morning, the president of the European Central Bank (ECB), Mario Draghi, avoided sending any clear messages about the institution’s current policy. Calling for open-mindedness and policy innovations on the part of central bankers, Mr. Draghi said that officials must be “unencumbered by the defense of previously held paradigms that have lost any explanatory power.” The audience he was addressing included 17 Nobel laureates and 350 young economists in Germany – a country that has not always reacted positively to ECB policy during his tenure. 

Mr. Draghi continued: “when the world changes as it did ten years ago, policies, especially monetary policy, need to be adjusted. That’s obvious for most people, but not for everybody.” He also noted that the policies instituted in those ten years have “made the world more resilient,” but cautioned that central bankers “should continue preparing for new challenges.”

According to a purchasing managers survey published yesterday, the euro-area’s manufacturers are feeding economic growth and creating jobs. But with a consumer-price growth of just 1.3%, arguments that deflation risks have disappeared are bound to raise their heads. Unfortunately for the ECB, its goal of 2% has yet to be met.

Next month, the central bank’s policy makers will meet to discuss the future of their stimulus program on September 17. Chief amongst the concerns addressed are likely to be how much more support the euro-area requires to become durable, and whether markets will react unfavourably to the eventual winding down of stimulus.

Draghi’s next big meeting will be on Friday, when he joins his American counterpart – Federal Reserve chief Janet Yellen – at Jackson Hole Wyoming to discuss “how to foster dynamic growth.” Perhaps in a preview of the kind of thinking to expect at that meeting, Mr. Draghi highlighted the importance of academic input to economic policy, saying:

“A policy response that has its foundation in rigorous research is less prone to being impaired by political compromise and easier to explain to the general public.”

The opinions in this article do not reflect those of Dominion Fund Management Limited, and in the instance of any forward-looking statements, these should not be construed as advice.

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