Monetary Policy in the Environment of Recovery: Experiences of Baltic Sea Region
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Transcript of Monetary Policy in the Environment of Recovery: Experiences of Baltic Sea Region
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Monetary Policy in the Environment of
Recovery: Experiences of Baltic Sea Region
Märten Ross
Suomen Pankki
Warsaw, May 24th 2012
Märten 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 2
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Recovery was fairly strong in 2010-2011
3
-5
-4
-3
-2
-1
0
1
2
3
4
5
2007 2008 2009 2010 2011 2012
Euro area USA Japan China*
Percentage change from previous quarter
*Estimate by BOFIT.
Sources: ECB, BEA and ESRI.
Märten Ross
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Inflation pressures built up
Märten Ross 4
-4
-2
0
2
4
6
8
10
2007 2008 2009 2010 2011 2012
Euro area USA Japan China
Percentage change from previous year
Sources: ECB and Bloomberg.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Eurosystem monetary policy has targeted its
primary goal
Märten Ross 5
0
1
2
3
4
5
6
7
2000 2005 2010
ECB Fed BoJ BoE Riksbank
%
Source: Bloomberg.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Debt crisis complicates the picture
Märten Ross 6
0
5
10
15
20
25
30
35
40
2008 2009 2010 2011 2012
Germany Finland France Greece
Ireland Italy Portugal Spain
%, 10 y
Source: Bloomberg.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Problems in transmission mechanism were
targeted via unconventional monetary policy
Märten Ross 7
-1 500
-1 000
-500
0
500
1 000
1 500
2009 2010 2011 2012
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)
EUR bn
Source: Bank of Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
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 short-
term 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 8
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
In any bigger currency area one faces some
level of divergence
Märten Ross 9
-2
-1
0
1
2
3
4
5
6
2007 2008 2009 2010 2011 2012
Spain Italy France Germany
Percentage change from previous year
Source: Eurostat.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Price stability achieved also in Finland
Märten Ross 10
-1
0
1
2
3
4
5
2007 2008 2009 2010 2011 2012
Euro area Finland
%, HICP
Sources: European Central Bank and Statistics Finland.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Data on inflation expectations support the
perception of price stability being achieved
Märten Ross 11
-4
-3
-2
-1
0
1
2
3
4
2007 2008 2009 2010 2011 2012
Euro area USA
%, 2Y inflation swaps
Source: Reuters.
SUOMEN PANKKI | FINLANDS BANK | BANK OF FINLAND
Thank you!
Märten Ross 12