Draghi slams central banks’ broken economic models
Previous paradigms “have lost any explanatory power,” says ECB chief
Speaking in Germany on Wednesday, European Central Bank President Mario Draghi did not reveal any details regarding the bank’s current thinking on tapering, but he did not shy away from criticizing the economic models that have been driving policy in developed economies.
“When the world changes as it did ten years ago, policies, especially monetary policy, need to be adjusted,” adding “that’s obvious for most people, but not for everybody.”
The speech, given at the Lindau Nobel Laureate Meeting, comes ahead of a policy meeting on September 7, when officials are expected to discuss the path toward tapering of stimulus policies.
“Such an adjustment, never easy,” Draghi went on, “requires unprejudiced, honest assessment of the new realities with clear eyes, unencumbered by the defense of previously held paradigms that have lost any explanatory power.”
“(John Maynard) Keynes is often quoted as saying, `When the facts change, I change my mind. What do you do, sir?'” Draghi said. “Well, for policymakers, it is not that simple, and research helps us to decide whether a change in the facts deserves a policy response or, as we say, we should look through it.”