Philip R Lane: Macro-financial policies for the short term and the long term

Speech by Mr Philip R Lane, Governor of the Central Bank of Ireland, at the MacGill Summer School, Glenties, 27 July 2018.

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

The theme of this session is the challenge of sustaining positive economic performance. At one level, this question is concerned with the avoidance - or, at least, the mitigation - of the severe busts that have followed some previous phases of economic expansion.  At another level, if cyclical volatility is appropriately managed, a more ambitious analysis would also seek to identify the macro-financial policy priorities if Ireland is to attain its long-term goals in terms of sustainable economic and social development.

In these remarks, I seek to address both dimensions of sustaining positive economic performance.  At a conceptual level, it is straightforward to make the distinction between the long-run trend and the short-term cycle, with trend-cycle decompositions widely employed in economic analysis. As an empirical matter, especially for small and open economies that are some distance from the global frontier, it is not so easy to differentiate in a clean way between short-term and long-term fluctuations in national income since the international mobility of capital, labour and technology means that a wide range of paths for the economy are feasible (Aguiar and Gopinath 2008,  Bluedorn and Leigh 2018).