Governor Philip R. Lane speech to ACI World Congress

• Speech addresses the external macro-financial spillovers that are relevant in evaluating the appropriate monetary policy stance and the internal macro-financial spillovers that may require mitigation through national macroprudential policies.
• The trend increase in global trade and financial integration over the last twenty years means that external spillovers are quantitatively larger today than in the past.
• Over the last two years, the external value of the euro has been broadly stable, while the ECB’s accommodative monetary policy has contributed to domestic recovery in the euro area. This combination means that the rest of the world also enjoys positive external spillovers from the ECB’s monetary stance via increased exports.
• Member countries that experience financial side effects from accommodative monetary policy can mitigate financial stability concerns through national macroprudential policies.

Addressing the ACI World Congress in Dublin, Governor Philip R. Lane of the Central Bank of Ireland discussed the external spillovers that are relevant in evaluating the appropriate monetary policy stance for the euro area and the internal spillovers that may require mitigation through national macroprudential policies. He presented evidence that the scale of trade and financial integration has trended upwards over the last twenty years, so that the potential scale of external and internal spillovers are quantitatively larger today than in the past.

Governor Lane noted that in the analysis of the ECB’s monetary strategy ‘it is essential to incorporate the impact of external conditions on the design of the ECB’s monetary measures, while also recognising the role of the external sector in determining their effectiveness’. He added that, from the perspective of individual member countries, the national impact of the ECB’s monetary strategy depends on a host of country-specific factors. In reviewing the impact of the ECB’s accommodative monetary stance in recent years, he emphasised that the external value of the euro has been broadly stable since mid-2015, such that the recovery in the euro area economy has also benefited the rest of the world through positive trade linkages.

In relation to internal spillovers, Governor Lane said ‘it is now widely accepted that national macroprudential policies can play an important role, especially in relation to differences in financial cycles across member countries’. He added that ‘through such mechanisms, the impact of internal spillovers within the monetary union and any potential financial stability side effects of the area-wide common monetary policy can be mitigated.’