Monetary Policy in the Environment of Recovery: Experiences of Baltic Sea Region M채rten Ross Suomen Pankki Warsaw, May 24th 2012
M채rten Ross
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Baltic Sea – monetary policy laboratory?
Free floaters: Sweden, Poland Managed floater: Russia Fixers: Denmark, Lithuania and Latvia Euro: Finland, Germany and Estonia
Märten Ross
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
2
Recovery was fairly strong in 2010-2011
Euro area 5 4 3 2 1 0 -1 -2 -3 -4 -5
USA
Japan
China*
Percentage change from previous quarter
2007 2008 2009 *Estimate by BOFIT. Sources: ECB, BEA and ESRI. M채rten Ross
2010
2011
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
2012
3
Inflation pressures built up
Euro area 10
USA
Japan
China
Percentage change from previous year
8 6 4 2 0 -2 -4 2007 2008 2009 Sources: ECB and Bloomberg.
M채rten Ross
2010
2011
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
2012
4
Eurosystem monetary policy has targeted its primary goal
ECB 7
Fed
BoJ
BoE
Riksbank
%
6 5
4 3 2 1 0
2000 Source: Bloomberg.
M채rten Ross
2005
2010
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
5
Debt crisis complicates the picture
Germany Ireland %, 10 y
40
Finland Italy
France Portugal
Greece Spain
35 30 25 20 15 10 5 0
2008 2009 Source: Bloomberg.
M채rten Ross
2010
2011
2012
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
6
Problems in transmission mechanism were targeted via unconventional monetary policy Supplementary longer-term refinancing operations (36 mth) Fine-tuning operations (1-7 days) Net recourse to the standing facilities (overnight) Main refinancing operations (1 week) Supplementary longer-term refinancing operations (1-12 mth) Longer-term refinancing operations (3 mth)
1 500
EUR bn
1 000 500 0 -500 -1 000 -1 500 2009 2010 Source: Bank of Finland. M채rten Ross
2011
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
2012
7
Monetary policy in Euro area
Euroarea monetary policy has a clear mandate: price stability for the whole euro area – Despite challenging environment of the debt crisis monetary policy credibility has remained strong and inflation expectations stable – Country specific shocks and diverging policies can affect shortterm developments, but diversity per se is not a problem – ’Optimality’ of common monetary policy in the long run depends very much on the member states themselves as wrong policies by them can evolve into big structural problems.
Märten Ross
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
8
In any bigger currency area one faces some level of divergence Spain
Italy
France
Germany
Percentage change from previous year 6 5 4 3 2 1 0 -1 -2
2007 2008 Source: Eurostat.
M채rten Ross
2009
2010
2011
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
2012
9
Price stability achieved also in Finland
Euro area 5
Finland
%, HICP
4 3
2 1 0 -1 2007 2008 2009 2010 2011 Sources: European Central Bank and Statistics Finland.
M채rten Ross
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
2012
10
Data on inflation expectations support the perception of price stability being achieved
4
Euro area %, 2Y inflation swaps
USA
3 2 1
0 -1 -2
-3 -4 2007 2008 Source: Reuters.
M채rten Ross
2009
2010
2011
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
2012
11
Thank you!
M채rten Ross
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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