a h e m wellink : the impact of new technologies on the implementation of monetary policy speech by dr a h e m wellink, president of the nederlandsche bank, at a symposium of the banque de france on “ new technologies and monetary policy ”, paris, 30 november 2001. * * * when thinking about new technologies, information and communications technology ( ict ) is probably the first thing that comes up in most people ’ s mind. and, there are those who see an acceleration in the diffusion of ict as being equivalent to the concept of the ‘ new economy ’. for the purposes of this conference, i would prefer to take a wider perspective, in which the new economy is seen as the interaction of several mutually reinforcing factors. these include advances in ict, financial innovation and liberalisation, the globalisation of trade, improved functioning of markets and enhanced macroeconomic management. the interplay of these factors has the potential to raise the speed limits of the economy. that is, the new economy can operate at higher growth rates than in the past without generating additional inflation. therefore, both the initial hype surrounding the new economy with some pronouncing the demise of the business cycle, as well as the elimination of the new economy all together in response to current economic circumstances, seem to be misguided. the jury is still out on the question whether we can detect a new economy in europe. without wanting to prejudge the outcome, i would argue that there is no intrinsic economic reason to expect the new economy not to materialise. so, assuming that it will take root, indeed what does this new economy imply for the monetary policymaker? i have a couple of general observations to make. first, the new economy influences the transmission of monetary impulses through the economy. it can be argued that in the new economy it will take less time for a monetary policy impulse to have an impact on inflation and output, while the impact of a given impulse will be smaller. since there is a separate panel discussion devoted to this topic, i will leave it at that and move on to the second observation. that is, policy makers do not bring about the new economy. it is the result of private sector behaviour, driven by innovative entrepeneurship or, more fashionably, ‘ creative destruction ’. policy in general can only be conducive to the new economy. in a market - based economy, private sector decisions are guided by the alloca

that external shocks, like the ones we are experiencing today, might take time to fully materialise. we learned this from the two oil crises in the 1970s. the oil shocks in 1973 and 1979 led to an increase in banking provisions that only peaked in 1983. and those provisions were even higher than the provisions during the great financial crisis. 2 / 4 bis - central bankers'speeches so when and how the current inflationary shocks will have fully rippled through our economy is highly unpredictable. this will also depend on the fiscal and monetary policy response, and whether or not the geopolitical situation deteriorates further. so now that we find ourselves beyond our models'perimeter and without a straightforward scenario at hand, how do we go forward? what can guide our decisions? i suggest three " lines of defence " : first, in order to enhance banks'resilience, the implementation of basel iii in europe should continue without delay and with as little deviation as possible. one of the cornerstones of the basel iii reform is the introduction of the output floor, which is designed to reduce model risk. in this specific case, model risk is the risk that a bank's internal models incorrectly estimate the bank's capital requirements. for banks, the output floor will put a limit on the reliance on stochastic scenarios and increase their resilience. on this matter, i fully support the strong plea from the ecb and the eba to faithfully implement basel iii. 2 second, for banks to be able to determine their course of action and assess and mitigate risks, they need a thorough understanding of their exposures and of how the current challenges might impact their portfolios and financial positions. this starts with good data of high quality and extensive insight into their customers'financial positions – not only at the start of a contract, but also throughout. that is why we put pressure on banks to improve their data quality, and to properly aggregate and report on their data. third, whatever scenario banks eventually follow, it is crucial to maintain a healthy capital position. as i briefly illustrated with the oil crises, many of the risks of the current circumstances may only materialise down the road. the economic and financial situation in which banks took on risks on their balance sheets in the past years has fundamentally and abruptly changed. this makes it very unlikely that the scenarios used then still align with the world of today. this is why we are asking banks to be prudent with dividend payouts and share