peter praet : global monetary policies - similarities and differences on the way to the new normal remarks by mr peter praet, member of the executive board of the european central bank, at the gic / suerf / deutsche bundesbank conference " monetary and economic policies on both sides of the atlantic ", frankfurt am main, 8 february 2018. * * * accompanying slides i would like to thank john hutchinson for his support in preparing this speech. one of the main features of central banks ’ response to the crisis – and the threat it posed to their statutory objectives – was the deployment of additional monetary policy instruments. some of these instruments, such as asset purchases, had featured in the traditional toolkit of central banks in the early years of central banking before largely falling out of use in some parts of the world. others, such as forward guidance on the future direction of policy, were a more recent invention, but had been used with some regularity even before the crisis erupted in 2007. and some instruments, such as moderately negative interest rates, were more specific to certain jurisdictions. overall, these measures have been very effective and helped set in train the synchronous expansion the global economy is currently experiencing. as the global economy emerges from the greatest slump since the end of the second world war, the focus is on calibrating the degree of monetary accommodation that is still required. in the united states, where real gdp returned to pre - crisis peak level back in 2011, the tightening cycle has been under way for some time. the federal reserve stabilised its monetary policy portfolio in october 2014 and started to raise the federal funds rate more than a year later. more recently, it has started to reduce its balance sheet. in the euro area, the sovereign debt crisis meant that the cyclical recovery took considerably longer to materialise than across the atlantic. real gdp did not return to its pre - crisis peak level until 2015, four years later than in the united states. nevertheless, the euro area is currently experiencing a solid and broad - based economic expansion, with the economy in 2017 growing at its fastest pace for a decade. the very accommodative monetary policy measures we have taken since 2014 are judged to have had a significant impact on output growth. looking ahead, real gdp growth is projected to remain consistently above potential growth in the coming years. despite these favourable developments, inflation continues to be lacklustre and to date is not receiving sufficient support from underlying inflationary pressures.

our baseline scenario. this can be partly attributed to pension and labour market reforms as well as to migratory flows. increased labour supply has resulted in muted wage dynamics, thereby keeping a lid on underlying price pressures. overall, the uncertainty surrounding the upward path in inflation that we consider in our baseline scenario is still too high. experience demonstrates the importance of our third criterion, resilience. monetary policymakers always face a delicate balancing act at turning points in monetary policy. in 2011, when we increased interest rates, economic activity indicators were pointing to buoyancy and, of course, inflation was high on account of oil prices. hindsight gives us today a clearer view of the underlying conditions of the economy than it was possible to have at the time, and we now know that the apparent robustness of the economy was in fact masking vulnerabilities that made the economy prone to sudden reversals. and in the summer of that year, a sudden reversal was indeed what we saw. in 2013, we experienced a similar, if less dramatic, difficulty in our assessment of the economic situation. over that year, banks started to repay the funds that they had borrowed under the two three - year ltros which we had offered between late 2011 and early 2012. many observers at the time interpreted this massive reimbursement – including from banks that had been hit particularly hard by the sovereign debt crisis – as a sign of normalisation. in reality, it was a symptom of the aggressive deleveraging that banks were pursuing, which made ecb borrowing unnecessary and costly to maintain on - balance sheet for many of them. while reimbursing excess liquidity made a lot of sense from the individual bank ’ s microperspective, it was hurting the economy in the aggregate. today, we want to make sure that the economy is on a sufficiently robust footing before there is a turn in policy. from that perspective, there is still some way to go before all three criteria for a sustained adjustment are met at the same time. so, we still need patience and persistence in our monetary policy. we need patience because it takes time for price pressures to build up. and we need persistence because the pick - up in inflation is the result of the prevailing monetary policy stance. if the flow of incoming data were to confirm the expectation of a gradual build - up of inflationary pressures, this would not necessarily be sufficient to affirm a sustained adjustment as less supportive monetary policy conditions could imperil