Dimitar Bogov: Addressing structural rigidities in view of monetary
policy transmission effectiveness
Address by Mr Dimitar Bogov, Governor of the National Bank of the Republic of Macedonia,
at the 4th Research Conference "Addressing structural rigidities in view of monetary policy
transmission effectiveness", Skopje, 23 April 2015.
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Dear Governors, Your Excellences,
Ladies and Gentlemen, Dear guests,
It is my pleasure to welcome you all, on our fourth Research Conference, entitled Addressing
Structural Rigidities in View of Monetary Policy Transmission Effectiveness. Just like the
previous years, we hope that the topic of this conference is both interesting and challenging
to provide an interactive framework for discussion and research-based policy advices for the
central bankers.
Structural rigidities, indeed, are related to a wide range of economic segments. Therefore,
today we will try to tackle different economic issues, enlightening their importance for the
monetary policy transmission effectiveness. Transition economies have undergone many
structural changes in the ongoing reshaping of the economies, which to some extent have
influenced the monetary policy decision making or monetary policy transmission channels.
Globalization is yet another factor that tends to produce changes in the economic structure
and at the same time, affects the markets functioning or economic agents' behavior. The
labor market rigidities, wage and price settings, financial market imperfection, impact of
foreign direct investments and many other issues must be appropriately taken into
consideration in the monetary policy implementation and probably we have all put in a great
deal of effort to accommodate our models to capture these specifics.
The last global crisis, with its overall severity, time length and countries coverage reactivated
the importance of structural issues for the advanced economies too, pointing to the fact that
not always same measure fits any situation, not always same risk affects in a same way and
not always same threshold is valid for everyone. Nowadays, we speak about flexible and
innovative monetary policy, designed on a broadly based information platform, incorporating
structural features of the economies and all specifics of the monetary policy transmission
mechanism. Since the onset of the crisis, we have tried to better incorporate financial stability
aspects into monetary policy decision making. In addition, we learnt that zero lower bound
rate in the advanced economies or historically lowest interest rates in emerging economies
were not able to revive credit growth, until we moved towards renovating our toolkit.
Nonstandard monetary policy measures in different modalities have been widely used by the
central banks around the globe during the crisis period, with the ultimate goal to capture
countries' specific structural features. These tailor made measures proved to have ability for
more effective monetary signals transmission, considering the additional impairments of the
traditional transmission channels during the crisis.
Taking care about financial stability risks when conducting monetary policy, is one of the
most important lessons learnt from the global crisis. In the highly globalized world, in
practice, it means that we need to follow interlinks between domestic banking system and
international financial markets in view of financing structure as well as its risk exposure
considering traditional versus complex market products. Countries of the region, with
relatively large share of foreign ownership in the banking system, probably to some extent
experienced certain deleveraging pressure on the group level in the past years that
unavoidably affected domestic subsidiaries' behavior. Strengthening of regulatory
requirements and their implementation in practice, as well as restructuring processes of the
EU banks hit by the crisis, impose additional challenges to the financial stability and the
monetary policy, as well.
On the backdrop of the lessons from the crisis and still fragile global environment, monetary
policy should be designed carefully and implemented flexibly. Besides the traditional
transmission channels, we must be aware of the expectations channel as well as the
risktaking channel. Therefore, in implementing our policy measures within the targeting horizon
we need to take into account the market expectation as well as the risk perceptions of the
economic agents. A mix of standard and non-standard instruments, intensified
communication with the public, a broad overview of financial stability risks and the effects of
macroprudential regulation, regular monitoring of the external factors' potential spillovers to
the domestic economy, are probably the best options for securing effective implementation of
the monetary policy.
Although being far away from the acute stage of the crisis, the current global environment is
marked with relatively weak and uneven growth outlook, especially in the advanced
economies, which led to different paths of their monetary policy stance. While ECB has just
started its large-scale quantitative easing program, FED is just about to exit the
accommodative monetary policy stance. These contrasting growth prospects of the leading
economies underpin the risk of global financial markets volatility in view of eventual
rebalancing positions between the main world currencies. On the other hand, there is a
group of emerging economies with better growth performances and prospects for the future,
including the Macedonian economy, which in the recent years has shown sound recovery,
taking into account the significant ongoing structural changes in the economy as well as the
fiscal space from the previous years. A common feature for the current surroundings are
disinflationary or deflationary pressures around the globe in light of the fall of oil prices, with
potential impact on the monetary policy cycle, additionally increasing uncertainty about
external environment. At this point, monetary policy must broaden its scrutiny to involve
every important aspect from the external environment, domestic economic cycle as well as
structural features important for the future monetary policy stance.
The bottom line is that in a dynamic external environment we must take care about structural
bottlenecks, regardless of whether they are related to the transitional stage of our economies
or induced by the global crisis. I have tried to tackle some of them, which I believe will be
discussed further on the high level Governors panel or additionally elaborated in the next
sessions within the research papers. As I mentioned at the beginning, this is a broad topic,
which is very important for the monetary policy transmission effectiveness. Therefore, I
appreciate your attendance and contribution to our Conference, in sharing experiences and
broadening our overall knowledge on these issues.
I wish you interesting conference and fruitful discussion!