christine lagarde : policymaking in a new risk environment speech by ms christine lagarde, president of the european central bank, at the 30th dubrovnik economic conference, dubrovnik, 14 june 2024. * * * it is a pleasure to be here in dubrovnik. to this day, the stunning beauty of this city evokes the words of one of its most famous poets, ivan gunduli : " o lijepa, o draga, o slatka slobodo ". 1 these words may be centuries old, but they remain as fresh as ever for those who have the good fortune to experience dubrovnik first - hand. the programme for the 30th dubrovnik economic conference offers a snapshot of policymaking in a world of transition. and this world of transition is, increasingly, a world of profound uncertainty for economic policymakers. if you look back at the speeches of former central bankers – as i'm sure many of you enjoy doing – policymakers in every era claim that the world has never been more uncertain. and indeed the world is not necessarily more tumultuous than in the past, but the nature of the risks we are facing is unusual. increasingly, volatility in growth and inflation will not only be driven by the business cycle, which we understand relatively well, or even by the financial cycle, which we understand less well but can at least try to pre - empt. it will also be driven by a pair of major structural forces that we have next to no experience of : geopolitical fragmentation and climate change. the fragmenting of a previously highly globalised world is a type of risk that advanced economies have not faced since the period after the first world war. and a rapidly changing climate is a risk that we have not seen for millennia. the unusual risk environment three factors make these risks special for policymakers. first, they are particularly difficult to quantify and forecast. we saw this in europe after the russian invasion of ukraine, but more generally geopolitical risks create various types of spillovers that are hard to map out ex ante. that said, there are some recent studies that try to quantify the impact of conflicts. one study, for example, estimates that for countries that are geographically close to a war zone, output falls by more than 10 % over five years and inflation rises by 5 percentage 1 / 6 bis - central bankers'speeches points on average. 2 another

, “ a step in the dark : unconventional monetary policy after the crisis ”, andrew crockett memorial lecture, bis. bis central bankers ’ speeches monetary policy coordination. i would like to take this opportunity to elaborate on my views on this discussion. the debate on international monetary policy coordination there are different proposals on how the ims should change. in particular, there have been several calls to establish a more formal framework of monetary policy coordination, or some kind of revised bretton woods system. overall, i will argue that the forces which are at play today in the ims, as described above, call for a strengthening of some of its features rather than an overhaul. theory first, while the literature suggests that international monetary policy coordination may be instrumental in achieving a globally optimal solution, it generally concludes that the gains from coordination are small relative to an environment in which national policy - makers pursue optimal domestic policies. 7 second, it is not clear that the benefits from coordination increase monotonically with economic and financial integration. 8 on the one hand, financial integration intensifies the impact of foreign shocks on the domestic economy. on the other hand, it also improves diversification and insurance opportunities, hence mitigating the impact of foreign shocks. it is difficult to know ex ante which of these effects will dominate both in “ normal ” and “ crisis ” times. my suggestion would be that while the diversification effect dominates in “ normal ” times, in “ crisis ” times the effects from large adverse spillovers prevail. i will come back to this issue later. practical obstacles there are also several practical challenges that make more explicit and binding forms of monetary policy coordination difficult. the first stems from political economy. central banks operate under different mandates, time horizons, objectives and accountability arrangements. they are ultimately backed by their domestic fiscal authority and report to their domestic parliament ( the euro area is no exception to this rule, even if sovereignty is shared locally ). as a consequence, they cannot act as lenders of last resort other than in a discretionary way beyond the boundaries of their political constituencies. in addition, economic cycles do not always coincide across countries, which creates tensions between what is needed for domestic purposes and what is optimal from an international perspective ( the demise of the louvre accord is a classic example ). finally, given that uncertainty is pervasive in economic policy - making, developing a common assessment of global risks and spillovers will always be difficult. this considerably complicates consensus