Joachim Nagel: Reflections on the Eurosystem's new operational framework

Speech by Dr Joachim Nagel, President of the Deutsche Bundesbank, at the "Konstanz Seminar on Monetary Theory and Monetary Policy", Konstanz, 16 May 2024.

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

Check against delivery 

1 Introduction

Dear participants at this year's Konstanz Seminar. It is a great pleasure and a privilege to be here with you and to deliver the speech for the policy session. I am sure you all enjoyed your lunch, but I hope that you are still hungry for some more food for thought. 

As you all know, Karl Brunner's original intention for the Konstanz Seminar was to connect economists from Europe, especially Germany and Switzerland, with top academics from the US. In my address today, I would like to build another connection: Between monetary theory and monetary policy implementation. And as you may know from my CV, this connection is particularly dear to me, as I have been deeply involved in policy implementation during my career at the Bundesbank. 

In most macroeconomic models, the central bank simply "administers" the short-term interest rate "i". The future path of this overnight interest rate then determines medium to long-term interest rates, and thus the borrowing costs of economic agents that exercise demand for goods and services. 

Don't get me wrong here: I am not saying that this simplification is unreasonable. But in order to make this simplifying assumption, a lot has to happen behind the scenes – in the world of monetary policy implementation. This world is mostly inhabited by central bank economists, as a search for works on monetary policy implementation shows. 

The most cited paper on monetary policy implementation, Claudio Borio and Piti Disyatat's "Unconventional monetary policies: an appraisal", has around 1,200 citations. That sounds quite impressive. These authors struck a nerve when central banks worldwide started to delve into the world of quantitative easing. The second most cited work, Ulrich Bindseil's "Monetary Policy Implementation: Theory, Past, and Present", has been cited almost 500 times.