olli rehn : a globally symmetric crisis calls for a globally coordinated and forceful policy response remarks by mr olli rehn, governor of the bank of finland, at the reinventing bretton woods committee panel discussion on “ the world economy transformed : reflections on policy responses and the future post pandemic monetary architecture ”, in the context of the virtual imf spring meetings, washington dc, 17 april 2020. * * * ladies and gentlemen, let me start by noting the exceptional nature of the corona crisis and by acknowledging my deepest gratitude to all those who are fighting this unprecedented global threat in the frontlines, in healthcare and elsewhere. we are facing a severe humanitarian crisis on a global scale, which indeed calls for a coordinated global response. the title of the session has two elements as to the transformation of the world economy : reflections on policy responses, on one hand, and on the future post - pandemic monetary architecture, on the other. i shall focus mostly on the first part, i. e. policy responses, which is the most burning matter in our time. meanwhile, i admit i don ’ t have the crystal ball beyond the current crisis to foresee its specific effects on the longer - term monetary architecture. but they are certainly not unconnected : e. g. the proposal for new sdr allocation is closely related to the pursuit of a better functioning multilateralism. and by my reading and experience, there is no historical evidence that hegemony would create a more stable global monetary order than effective multilateralism. but i guess that should be a no - brainer for a body that is called re - inventing the bretton woods committee, so i refrain from lecturing! let me make three points in my introductory remarks. 1. several analyses, including the scenario modelling done at the bank of finland, suggest that forceful but relatively short - lived restrictions to limit the spread of the pandemic will result in significantly lower output losses and economic damage than a more gradual approach with milder but longer - lasting restrictions. nevertheless, the timing of lifting the restrictions will require a difficult balancing act, done preferably in international coordination. in any scenario, policymakers must do their utmost to build a bridge over the troubled times, in order to prevent a sharp rise in bankruptcies and job losses. mostly, the policy response has been swift. learning the lessons of the global financial crisis, governments and central banks have launched an unprecedented monetary and fiscal stimulus to support the

literature – are the signalling effect and the portfolio balance effect. [ slide 7 ] signalling and portfolio balance effects of a large - scale … the signalling effect contributes to stronger anchoring of inflation expectations in line with the medium - term objective of price stability. this effect also contributes to reducing anticipated real rates. depending on the monetary policy reactions in the rest of the world, the signalling can also put downward pressure on exchange rates. the portfolio balance effect broadens the effects of the securities purchases to the whole financial system even if only a comparatively narrow range of high - quality securities are purchased by the central bank. with this effect, investors are encouraged to shift holdings into other asset classes – e. g. from sovereign to corporate bonds, from debt to equity, and across jurisdictions. this has an indirect effect on the prices and required rates of return in the financial markets as a whole. [ slide 8 ] ecb ’ s accommodative monetary policy overall, the ecb ’ s accommodative monetary policy lowers real interest rates and eases financial conditions in the economy, boosting demand. consumption increases and the lower cost of debt finance, reduced cost of equity and weaker exchange rates in combination contribute to making some investment projects profitable that were previously deemed unattractive. bis central bankers ’ speeches this supports private consumption through various channels. also, the lower cost of debt finance, reduced cost of equity finance, and the weaker exchange rate all contribute to making investment projects more profitable. [ slide 9 ] divergence in monetary policy cycles has weakened the euro the divergence in international monetary policy cycles is putting downward pressure on the external value of the euro. this development is partly a result of tightening monetary policy expectations on the other side of the atlantic. [ slide 10 ] renewed decline in oil price puts downward pressure … conditions in wide spectrum of asset markets have developed broadly as intended when the current cycle of monetary policy easing. however, the slowdown in emerging markets and recent sharp fluctuations in financial and commodity markets have brought some downside risks to the outlook for growth and inflation. the renewed decline in oil price puts downward pressure on inflation in the short run. [ slide 11 ] commitment to accommodative monetary policy stance … commitment to the accommodative monetary policy stance supports inflation expectations, thereby lowering the real interest rate. more recently, renewed downside risks have emerged and inflation expectations have decreased. however, owing to sharp fluctuations in financial and commodity markets, the governing council judged