Unconventional Monetary Policy Measures: Principles-Conditions-Raison d’etre

It is always a pleasure to be in Washington, at the invitation of the Federal Reserve Board to exchange views with so many of the best brains that academia and central banking can offer. It is a double pleasure and honor to participate in a colloquium celebrating Don Kohn, who has played such a decisive role both in the Federal Reserve System during all his career, culminating as Vice-Chairman of the Board, and in Basel meetings and committees, where his leadership is in all memories. Don, seen by all your colleagues, the world over, you were admired as the exemplary central banker, demonstrating in all circumstances outstanding cleverness, lucidity, candor, calm, and sangfroid. I say "in all circumstances" on purpose, because we all have had, since mid-2007, the great privilege to experience extraordinary demanding and difficult times-times which are characterized by a succession of shocks that were unseen in the advanced economies since World War II. I am convinced that these shocks were potentially ever graver than those which triggered the 1929 crisis. Had the central banks and the public authorities not embarked on prompt and decisive actions, I trust that we would have experienced not only a great recession but a dramatic, deep, and rapidly unfolding depression. I have been closely associated with many crises that have hit various components of the global economy over the last thirty-five years: the Latin America debt crisis of the 1980s, the African debt crisis, the collapse of the Soviet Union, and the Asian crisis, to name only a few. All continents of the world have been successively called to drastically change their strategy, to adjust, and to go back to sustainable policies in the fiscal, structural macroeconomics fields. In this perspective, the fact that the advanced economies were hit in 2007-08 is less surprising. They were practically the only ones that were spared from adjustment since World War II. In a way, it was their turn! Spinoza famously said, "If you want the present to be different from the past, study the past." Indeed we are called to study the past and to better understand what happened. This study should apply both to the ancient past and, even more, to the very recent past, marked, since the start of the crisis, by phenomena that were previously unseen. A much deeper understanding of the highly unexpected and strikingly rapid unfolding of monetary, financial, and economic events over the last five years seems to me one of the major preconditions for paving the way for a better future. It is with this in view that I propose to concentrate our attention today upon two major issues: First, on monetary policy in the crisis and the role of so-called non-standard measures. Second, on possible new promising avenues for economic research in light of the crisis.