The need to broaden the spectrum of views available to policymakers  An interesting example of this necessity can be found in a report, recently released by the International Monetary Fund,11 assessing its performance during the years before 2007, and  11  See International Monetary Fund (2011). BIS central bankers’ speeches  7  in particular its failure to sound alarm bells regarding the impending economic disaster. Among the problems the report identifies, key issues which are discussed are: “a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely, [and] lack of incentives to […] raise contrarian views”. The report also makes clear that some contrarian views raising doubts about the prevailing consensus were indeed present within the IMF – most notably, as I previously discussed, they had been presented by the Fund’s Chief Economist, Raghuram Rajan, in an address at Jackson Hole in 2005 – but that in most cases, they had simply not been included in the final versions of the Fund’s official documents produced for policymakers, and therefore failed to make any dent in the mainstream position, which remained resolutely optimistic. Although the risks associated with issues such as “groupthink” and “intellectual capture” are always present, they can be countered by broadening the spectrum of views available to policymakers. The latter should always search for logical inconsistencies, problematic assumptions, and inconsistencies with historical evidence pertaining to analogous situations, and present alternative scenarios based on different assumptions and competing analytical frameworks.

After all, over the last eight decades the world has seen three major episodes, with the associated liquidity traps: the Great Depression, the Japanese experience of the 1990s, and the current crisis. By any standards, three episodes within a period of eighty years cannot be regarded as just an “anomaly” in the functioning of the economy, or as something of only minor relevance. On the other hand, the experience with non-conventional policies during the crisis offers some reassurance that the problem posed by the ZLB may in practice be manageable, and that policymakers may therefore be able, if similar circumstances were to arise again, to avoid once again the slide into deflation. In this respect, let me stress again that the ability, on the part of central banks, to provide both conventional and unconventional stimulus to the economy has been substantially enhanced by the anchoring of medium to long run inflation expectations at a level consistent with their price-stability objective. The crisis has therefore illustrated the advantage deriving from stable inflation expectations, which increase the effectiveness of monetary policy in the face of large contractionary shocks by transmitting integrally moves in nominal interest rates into moves in real interest rates. Let me now turn to a final, and separate, lesson of the crisis, pertaining to the necessity of broadening the spectrum of views available to policymakers, and more generally of being more receptive to opinions and positions outside of the “mainstream”. II.5.