Speeches and Presentations

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Dear Eurosystem colleagues, 

It is a great pleasure for me to welcome you here in Salzburg on the occasion of the first meeting of the Heads of Research of the Eurosystem in Austria – and I hope you enjoy this inspiring and enlightening location of our meeting. 

Salzburg , Mozart and economics are more closely related than commonly known or expected. All of you are familiar with the famous “cost disease” argument by Baumol, who has illustrated this feature of specific services in an imaginative and colourful way by comparing it with the performance of a Mozart quartet. ¹

What may be less known is that Alan Greenspan recently related Mozart to economic progress: In discussing the roots and nature of how the human mind innovates, he argued that the liberal arts were an important prerequisite for technological progress and growth as they broaden one’s world view and help exploring other fields of knowledge. He also said, and now I quote: 

“The intense pleasure many experience from listening to Mozart[’s great D Minor Piano Concerto] has much in common with the deep satisfaction of solving a complex mathematical problem  ” ². 

I have to admit that my personal feelings are somehow different from those of Alan Greenspan, but in any case, I do believe that the ability to think conceptually is fostered through exposure to philosophy, literature and music. I am also convinced that broadening our views is crucial to economic progress. Exploring other fields of knowledge is furthermore a decisive prerequisite for innovation in economic research. 

But let me also mention that during the period of 1968 to 1975 August Friedrich von Hayek, toghether with Menger, Mises and Schumpeter one of the most famous representatives of the Austrian School of Economics, lectured as an honorary professor here at the faculty of law of Salzburg University. And it was at that time, namely in 1974, when we won the Nobel Prize and gave the nobel prize lecture on the always relevant topic “The pretence of knowledge”. 

But let me come back to the topic of research in the Eurosystem. I think that over the last five years, research has accomplished many ambitious goals both with respect to substance and to organisation. In terms of the latter, cooperation and coordination among the research activities of the national central banks and the ECB have been established and intensified as demonstrated by the formal and informal research networks that were set up. Most importantly, this has contributed to building an open culture that stimulates innovative thinking and challenges conventional views. 

As regards substance, we have seen that the research activities – some of them undertaken in a joint effort – have considerably increased our knowledge and can be considered a major step ahead; these activities included the successful work of the monetary transmission network, the highly relevant ongoing work on the main reasons behind inflation persistence in the euro area, as well as studies on macroeconometric modelling, forecasting and international finance – to mention only a few outstanding efforts. This not only helped to convey relevant information to decision-makers in monetary policy, it also facilitated the communication of our understanding of monetary policy to the public, which is of crucial importance. 

I personally believe that in the upcoming years research will become even more important than it has been for the first five years since the launch of the euro. 

The historical success of Monetary Union and European integration, including enlargement, that was generally not anticipated – say – ten years ago, is currently overshadowed by the weak economic performance of many euro area countries. Even if the downside risks of the current projection of the Eurosystem should not materialise, we will still observe relatively high negative output gaps in addition to the very well known structural weaknesses. 

This situation, the unprecedented long cyclical and structural weakness, requires considerable research efforts to solve the numerous puzzles we are currently faced with and which we have been unable to provide satisfactory explanations for. But of course, bringing Europe back on track is not only a matter of more and better research. It is a matter of convincing politicians and the electorate – on the necessity of sound monetary, fiscal and structural policies for long term growth. 

Dear colleagues, 

Communication with financial markets but also with the general public is crucial for successful monetary policy and accountability. Since central banks are independent bodies producing a public good, it is commonly agreed that research at central banks is not an end in itself but has to be closely related to the general objectives of central banking. 

It is not easy to strike the balance between a supply-driven and demand-driven organisation of research. Given the general necessity of cost-effectiveness considerations in the public sector, we should be aware of the fact that research at central banks will increasingly be exposed to pressure for justification. This of course should not lead us to downsizing research activities, but to strengthening our efforts in two respects: 

First, we should carefully coordinate our research activities in order to avoid duplication of work, both within and among central banks. I am glad that this is one of the topics of the regular meetings of the Heads of Research. 

Second, and most importantly, communication should become more open and not only restricted to the academic world. This point has already been made by Marvin Goodfriend, Reiner König, and Rafael Repullo in their evaluation of the ECB’s research activities. Research should be closely related to the needs of monetary policymaking, and it should also seek communication and the exchange of views with the general public. This may not only help to better appreciate the value of research conducted at central banks, it probably will also broaden our views and, therefore, increase our insights. This strategy clearly will put pressure on our research staff to communicate in a non-technical manner [which is in many cases very difficult]. 

Having said all this, it – nevertheless – has to remain one of the main tasks of central bank’s research activities to influence the academic discourse by publishing research in top journals and by actively participating in seminars and conferences. 

Dear colleagues, 

I hope that you will have valuable and interesting discussions tomorrow, for which I wish you all the best – and I hope also that today’s program has provided a stimulating starting point. 

¹   The productivity of the quartet has remained constant for all time, while wages were increasing in line with overall productivity. 

²   http://www.studyoverseas.com/business/greenspna.htm