. it is questionable whether a straightforward and stable relationship between the money supply and inflation also exists in the short and medium term. this is because the relationship has been disturbed by various factors. financial innovations have contributed, for example, to changes in the pattern of household payments and investment. moreover, a number of major factors still have to be forecast in order to arrive at what may be an appropriate target for the money supply. so in practice even a money supply strategy has to be based on forecasts of a number of variables and an assessment of, for example, the output gap. moreover, when the strategy was used in a number of countries in the 1970s and ‘ 80s, it was not particularly successful. in the absence of a straightforward, stable relationship between the intermediate variable ( the money supply ) and the ultimate objective ( price stability ), a conflict may arise between them because the central bank has only one instrument, its interest rate. if the central bank chooses the minimise fluctuations in the money supply, a probable consequence – given that the relationship is not exact or stable – will be increased fluctuations in inflation and output. it is intuitively hard to see why a central bank would prefer to stabilise the money supply, which does not directly affect public prosperity, rather than stabilising price movements and output more directly. if the relationship between the money supply and inflation is not exact and stable over time, the significance of the money supply should be demoted to that of one of several indicators in an inflation targeting strategy based on forecasts. while the money supply is an important indicator of inflationary pressure, it is not the only one. there may be grounds, on the other hand, for highlighting the significance of the money supply ( or rather perhaps its mirror image of the loan stocks in bank balance - sheets ) as a source of information about the financial system ’ s future stability. in the past, the build - up of a sizeable financial bubble has nearly always coincided with a major expansion of credit in the financial system. sweden ’ s bank crisis about a decade ago is a case in point. against this background, the money supply and credit flows should belong to the arsenal of indicators of both monetary and financial stability that a central bank ought to follow closely. inflation and the output gap yet another alternative way of conducting monetary policy is to set the interest rate as a function of the rate of price increases and some measure of the difference between actual and potential growth. professor john taylor, currently a treasury

joachim nagel : uncertain times - banks need resilience speech by dr joachim nagel, president of the deutsche bundesbank, at the deutsche bundesbank's symposium " banking supervision in dialogue ", frankfurt am main, 8 november 2022. * * * 1 introductory remarks ladies and gentlemen, welcome to this year's bundesbank symposium " banking supervision in dialogue ". a special welcome goes out to andrea enria. this event is a first for both of us this morning – for andrea as a speaker, and for me as president of the bundesbank. what a relief, then, that much else is familiar to me. for instance, my executive board colleague joachim wuermeling is hosting this event for the third time already. he is taking the floor straight after me. what's more, many of today's attendees have participated in this bundesbank symposium in the past. for many of you, it is one of the firm fixtures on your calendars for the year. however, the pandemic forced us to take a two - year hiatus from this straightforward, direct exchange of ideas. happily, we've now moved on from that. you see, it is particularly in times of great uncertainty that personal interaction comes to the fore. it helps to strengthen one's own powers of judgement. this holds especially true in times when we are also seeing our economic models coming up against their limits. indeed, judgement was a topic raised at the press conference following the ecb governing council's monetary policy meeting at the start of september. at that meeting, christine lagarde was taken to task for the repeatedly inaccurate forecasts produced by ecb staff. it is true that our experts at the bundesbank, too, were caught unawares by the pandemic, the war in ukraine and what christine lagarde referred to as " the energy blackmail ". but even so : repeatedly underestimating inflation dynamics is more than unfortunate. it is vital that we get to the bottom of what caused this problem. addressing the forecasting difficulties, the ecb president referred – quite rightly, in my view – to the importance of judgement, saying that : " we also apply as much judgement as possible to be as accurate as we can ". however, judgement is formed through experience. sharing experience and leveraging those insights to advance one's own assessments – that is the whole idea behind this bundesbank symposium. this