jens weidmann : crisis economics – the crisis as a challenge for economists lecture by dr jens weidmann, president of the deutsche bundesbank, at the annual gala meeting of the munich volkswirte alumni, munich, 13 june 2013. * 1. * * welcome mr baader members of the munich volkswirte alumni - club ladies and gentlemen i would like to extend a very warm welcome to you here at the deutsche bundesbank in munich. at the same time, i wish to thank the volkswirte alumni - club for inviting me to give this year ’ s lecture. even at the bundesbank, it is not every day that so many economists are gathered together, and the bundesbank employs a large number of economists. i would therefore like to take this as an opportunity to talk about economists and their role in the crisis. before that, however, i would like to offer my sincere congratulations to this evening ’ s prize winners on receiving their awards. 2. have economists failed? on 6 april 2009, a severe earthquake occurred in the central italian town of l ’ aquila with the tragic loss of more than 300 lives. only six days earlier, there had been a meeting of a national commission for the forecast and prevention of major risks. afterwards, the experts made a public declaration that, despite a few tremors over the past few days, there was currently no heightened risk of an earthquake in the region. ladies and gentlemen i am telling you about this incident because it is possible to draw instructive parallels with the role played by economists in the crisis. in much the same way as seismologists are accused of not giving ample warning about the possibility of an earthquake, economists are accused of not giving ample warning about the looming financial and debt crisis. and much as engineers are accused of making buildings that are not earthquake - resistant, economists are accused of building design flaws into the financial and economic system, with whole nations now suffering under the consequences. economists have never had the best of reputations, even in the academic world. many may feel that the topics which occupy economists are too common or vulgar – such as money. as silvio gesell wrote in 1911, “ lofty idealists can easily find subjects of investigation more attractive than money. religion, biology, astronomy, for example, are infinitely more edifying than an investigation of the nature of money. ” by the way, silvio gesell himself found this object of investigation interesting

demonstrate that they promote macroeconomic welfare. now, financial market regulation is being tightened because the negative macroeconomic consequences of financial crises have moved into the spotlight again. lord turner, the former chairman of the british financial services authority ( fsa ) came straight to the point in 2010 when talking about financial innovations and regulation, admitting self - critically “ we were philosophically inclined to accept that if innovation created new markets and products that must be beneficial and that if regulation stymied innovation that must be bad. we are now more aware of the instability risks which might offset the benefits of such innovation. ” 3. 2 role of the central banks since the financial crisis, there has also been more discussion about the role played by central banks. first, experience of the financial crisis has again raised the question of how monetary policymakers should deal with asset price bubbles. the prevailing opinion before the crisis was that monetary policy is a blunt sword when dealing with exaggerations in the asset markets. to “ prick a bubble ”, interest rates would have to be increased so sharply that it would entail severe macroeconomic collateral damage. as a further argument against pricking bubbles, it was claimed that central banks were unable to identify the emergence of such bubbles any better or earlier than other wellinformed market players. instead, the central banks should clear up the mess, so to speak, after the bubble had burst by means of massive interest rate cuts and injections of liquidity. however, this approach, or as it is also known the jackson hole consensus, the greenspan doctrine or simply the “ mop - up strategy ” was discredited by the crisis. even though those in favour of bursting speculative bubbles are few and far between, a policy of actively leaning against the wind is now gaining more widespread support. this approach is often referred to as “ more symmetrical monetary policy ". however, this does not mean that monetary policy should assume responsibility for financial stability. macroprudential policymakers have a more appropriate toolkit for safeguarding financial stability. in this context, the act on monitoring financial stability ( gesetz zur uberwachung der finanzstabilitat ) assigns the bundesbank important tasks in the field of macroprudential oversight. the bank is responsible, in particular, for analysing factors that are key to financial stability, identifying risks, making proposals to the financial stability committee regarding the issuing of warnings and recommendations, and evaluating the implementation of such warnings and recommendations