luigi federico signorini : macroprudential policy - effectiveness, interactions and spillovers welcome address by mr luigi federico signorini, deputy governor of the bank of italy, at the fourth annual macroprudential policy group research workshop, rome, 10 october 2019. * * * it is my pleasure to welcome you to the fourth macroprudential policy group research workshop. we are honoured to host an event that has become one of the most important opportunities to discuss macroprudential policy in europe. i would like to thank the organisers, the keynote speaker, the contributors to the four sessions and the panellists for the roundtable that will conclude the conference this afternoon. the papers to be presented today cover a wide array of topics and will help us to understand crucial features of the transmission mechanism of macroprudential policies. they take stock of the experience accumulated in recent years across the euro area. they also strive to contribute to the development of a measure of the prudential stance, an endeavour that i have always advocated as essential for the conduct of macroprudential policy. let me spend a few words on this point. the concept of stance should convey information on the overall impact of the policy instruments that have been implemented, on their adequacy in meeting policy objectives given the identified risks, and on the required policy orientation. a credible stance would help to enhance policy communication, reinforce transmission channels and counter potential inaction biases. certain steps towards setting a framework for a macroprudential stance in the eu have been taken. a notable contribution is a recent european systemic risk board publication, which proposes a “ risk - resilience ” framework to define the macroprudential stance. in that framework, the amount of systemic risk faced by the financial sector is compared to the level of resilience against negative shocks stemming from microprudential provisions, regulatory aspects or public safety nets, and the additional resilience created by the active macroprudential tools. the macroprudential stance is defined as loose or tight depending on whether the difference between risk and resilience is above or below some pre - specified level that measures the risk tolerance of the authorities, and thus, the “ neutral ” policy stance. this is an interesting framework and i certainly welcome it as a good starting point for a policy discussion. it is a high - level framework, however, and certain concepts need further development. without any claim to being exhaustive, i

given that this role has been defined in the original boi law from 1954 as one of the main responsibilities of the boi and its governor, the basic infrastructure of knowledge and highly professional staff, and reputation has been built at the boi to serve this responsibility. i also believe that the credibility of the central bank is enhanced, not damaged, by the quality research and policy recommendations it provides. in that regard, it may even contribute to the public support of an independent central bank. and as to friction between the central bank and the political system, during my term it was in fact most intense around issues related to the core activity of the bank of israel in supporting financial stability. the quest for enhancing competition in the provision of financial services, which we all share, led to heated debate as to the scope, the speed and the specifics of the financial sector reform. it centered around our insistence on ensuring that the reform does not undermine financial stability that was sometimes taken for granted by our partners in the design of the reform. in the past, the friction was most intense regarding the disinflation process, and jacob frankel who sits here, can certainty testify to that. so, we ’ ve had frictions in the past and will probably have them in the future, and we should be able to withstand them. we should provide a quiet, behind closed doors policy advice in some cases, and contribute to a better - informed public debate on key policy questions. i believe that within the current political context, where policies tend, more than in the past, to focus more on short term benefits and ignore longer term risks and costs, it is essential that an independent well regarded institution provides solid policy analysis and advice, and helps explain this to the public. so, i believe that retaining the economic advisory role by the central bank in the 2010 boi law has served the country well. in the second part of the conference, we have heard an extensive discussion of the panel of very distinguished speakers on monetary policy and inflation targeting in the post gfc era. thus, i feel it will be somewhat ambitious on my part to try to add to this extensive discussion. the only thing i would like to say is that monetary policy making in israel over the last 5 years that may have seemed boring at times to bystanders, has in fact been a fascinating journey to those involved in making it. early on, we reduced the interest rate to 0. 1 % — a record low for israel, a