mojmir hampl : central bank independence in practice - the case of the czech republic speaking points by mr mojmir hampl, vice governor of the czech national bank, at the annual research conference of the central bank of ukraine, kiev, 1 june 2018. * * * ladies and gentlemen, before i begin my talk in earnest, i would like to thank the organizers for inviting me to this inspiring event. it is an honor to participate in such a distinguished panel. and it is a particular pleasure for me to visit kiev, one of the great historical pivots of europe and also a city with immense economic potential. the latter, i believe, can be said about ukraine in general. the topic of this panel and the entire conference is monetary - fiscal interactions. this is an important issue, and i am convinced that a good working relationship between the central bank and the government is imperative for the proper counter - cyclicality of economic policy. my intention today, however, is to offer a related but cautionary tale. i will talk about central bank independence, with an emphasis on the experience of my own country. few economists nowadays doubt the importance of central bank independence for achieving price stability. for example, the latest meta - analysis of this research question summarizes 300 empirical estimates from dozens of studies and finds strong evidence that independence is crucial for delivering low inflation ( iwasaki and uegaki, 2017 ). this finding holds for both developed and emerging economies, as the authors clearly show. but many economists in this stream of literature, most prominently alex cukierman, stress that it is not enough to have independence enshrined in the central bank ’ s charter. legal independence is a necessary condition for actual independence, but not a sufficient one. i would say that actual independence is a state of mind of central bankers. this state of mind, then, determines the outcome of monetary policy and is imperative for providing price stability. so how can actual independence differ from legal independence? the key condition for actual independence is the de facto impossibility to dismiss central bank board members. in fact, the charters of almost all central banks around the world ( including the national bank of ukraine and the czech national bank ) allow for board members to be dismissed under some very specific conditions. but the applicability of these conditions varies widely, depending on custom and – crucially, i believe – the central bank ’ s standing in society. this observation brings me to an important point

relevance. yes, low interest rates are holding back banks ’ profitability, but our monetary policy is stimulating the volume and strengthening the quality of bank lending so well that its overall impact on banks is, for the time being, positive. if growth is to rise significantly and interest rates return progressively to levels more favourable to savings, economic policies must make a more active contribution. what does that mean in practice? budgetary margins for manoeuvre can be used, where they exist. but in most countries of the euro area they are limited or non - existent. in france, for example, where public debt is verging on 100 % of gdp, another delay in reducing deficits would mean taking an unconsidered risk with business and household confidence. in all of our countries, however, the mix of revenues and expenditure could be made friendlier to investment. and a comparison of current growth rates in the euro area shows a clear advantage for countries that have implemented the most ambitious structural reforms, most notably in their labour markets. 1 / 2 bis central bankers'speeches weak growth, high unemployment and low rates are not inevitable. they reflect the legacy of the crisis but are also a consequence of economic policies that are lacking in ambition. the ecb will continue to protect the euro area from financial shocks, but the monetary climate will not always be so favourable. and the global economy could present new risks. it ’ s time to draw – and act on – the appropriate conclusions. 2 / 2 bis central bankers'speeches