Mario Vella: What monetary policy cannot do

Address by Dr Mario Vella, Governor of the Central Bank of Malta, at the Grant Thornton Europe Regional Meeting, St Julian's, 24 May 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Almost ten years have passed since the outbreak of the global financial crisis, triggered by the collapse of Lehman Brothers in the autumn of 2008. During this period, central banks have become, according to The Economist, "the most powerful financial actors on the planet". Central banks have often been portrayed as the only institutional players with the knowledge and capability to prevent a global financial crisis from turning into a second Great Depression, on par with the one seen in the 1930s.

And yet, despite this aura of power, central banks are both fallible and constrained.

In this address, I would like to touch upon what monetary policy can do and, equally importantly, what monetary policy cannot do. As you know, Malta has formed part of the euro area since January 2008. Therefore, the Central Bank of Malta no longer formulates and executes a monetary policy of its own. Rather, as one of 19 members of the Governing Council of the European Central Bank, the Governor of the Central Bank of Malta takes part in the formulation of monetary policy for the euro area as a whole. At the same time, the Bank is responsible for implementing the Council's monetary policy decisions in Malta.