ales michl : notes from the 2023 jackson hole symposium notes by mr ales michl, governor of the czech national bank, at " structural shifts in the global economy ", an economic policy symposium sponsored by the federal reserve bank of kansas city, jackson hole, wyoming, 26 august 2023. * * * my discussions with colleagues from the fed, the ecb, the bank of england and the reserve bank of new zealand confirmed me in the view that our models should, like theirs, be audited and critically assessed. each central bank should start with itself. in the czech republic, we cannot repeat 2017, when the amount of liquidity in the banking system was increased significantly in order to weaken the koruna and trigger inflation. we need to do better than a high - inflation, highdebt, low - growth world. the jackson hole symposium, organised by the kansas city fed since 1982, confirmed that the cnb's monetary strategy over the last 12 months has been right and is now delivering some results. a year ago, the new cnb bank board was facing inflation of 18 %, the highest level in the country's history ( leaving aside the transformation period of the early 1990s ). we chose the following strategy to fight inflation : 1. rates stabilised at 7 %. the expectation was that rates would stay higher for longer than we had been used to in the previous ten years. 2. a new strong - koruna policy. the high prices of imported commodities needed to be brought down. the strong koruna is also tightening monetary conditions for large firms, which were previously unaffected by the cnb's high rates because they were borrowing in euros. the monetary conditions, which reflect interest rates and the exchange rate, have therefore been at their tightest in 20 years in recent quarters. inflation has fallen from 18 % in september 2022 to 8. 8 % in july of this year. core inflation has gone down from 14. 7 % to 6. 8 %. this is not yet a victory. inflation is still at an unacceptable level. most of my fellow central bank colleagues were saying much the same at the jackson hole symposium. this event is to economists what cannes is to film - makers and davos is to the business community : the top table. most of the world's central bank governors are here. first to give a speech was jerome powell, chair of the fed's board of governors ( powell, 2023 ). ec

##b president christine lagarde also spoke ( lagarde, 2023 ). powell and lagarde both affirmed their central banks'intention to fight inflation and return it to the 2 % target. both indicated that this would involve keeping rates higher for longer. no mention was made of cutting rates. 1 / 4 bis - central bankers'speeches along with governors'speeches, presentations of papers by prominent academics form the backbone of the symposium. the theme this year was " structural shifts in the global economy ". if you read all these papers, you'll be reminded of how monetary policies have gone from one extreme to the other in recent years : a long period of zero interest rates and growing central bank balance sheets ( i describe the negative example of the czech republic in 2017 in michl, 2023, and in the text below ) was replaced by a rapid rise in rates. the switch from extremely low to extremely high rates has generated a variety of problems. the first extreme was zero interest rates. they induced growth in private and public debt. this issue was explored by serkan arslanalp ( imf ) and barry eichengreen ( university of california, berkeley ) in their paper " living with high public debt ". the main thesis in this paper is that the debts of advanced, emerging market and developing economies are not going to decline significantly for the foreseeable future. according to the authors, the world faces lower growth, ageing populations will necessitate higher spending on healthcare and pensions, and politicians will be unwilling to cut expenditure / debt for fear of losing elections. liu et al. ( 2022 ) show that near - zero rates trigger stronger investment by market leaders relative to market followers. this increases their market power and leads to less competition. aggregate productivity in the economy is thus lower than when interest rates are at normal levels. the other extreme was the sharp rise in rates that occurred, for example, in the czech republic from 2021 until the first half of 2022. this revealed that the central bank had let too much money get into the economy in the past. at the jackson hole symposium, yueran ma ( associate professor, university of chicago ) and kaspar zimmermann ( professor, university of maryland ) showed in their paper " monetary policy and innovation " that rapid and radical monetary policy tightening reduces investment in innovation and hence lowers productivity in the economy and pushes up inflation in the future. the authors'findings do not imply that monetary policy should be extremely