ardo hansson : working together for the good of the eu and estonia opening speech by mr ardo hansson, governor of the bank of estonia ( eesti pank ), to the ragnar nurkse lecture for the 95th anniversary of eesti pank, tallinn, 4 november 2014. * * * professor balcerowicz, president of the riigikogu, chair of the supervisory board of eesti pank, excellencies, ladies and gentlemen, thank you for being here today to mark the 95th anniversary of eesti pank and to honour ragnar nurkse, the world's best - known economist from estonia to date. eesti pank was founded when the republic of estonia was only a year old and ragnar nurkse was a model eleven - year - old pupil at the tallinn cathedral school. in the words of juhan kukk, the minister of finance of the time, founding eesti pank as the issuer of the national currency and tying the currency to gold showed the same great “ bravery and belief in national and economic independence ” as engaging in the war of independence did. ragnar nurkse started his studies in the university of tartu, but he soon moved to continue them in the school of economics of the university of edinburgh and later in vienna. he was recognised in his home country for his work, as is shown by the worried letter that juri jaakson, governor of eesti pank at the time, sent him in spring 1938. nurkse was working in geneva at the time for the league of nations, the forerunner of the united nations. the letter says : “ the rise in the cost of living in the past three years has been larger than has been seen in many other countries that compete with us in foreign markets. when the cost of living rises, so wages should also rise and consequently so too production costs, with the result that our competitiveness declines. do we not have to fear this? ” unfortunately we do not know what advice nurkse gave to jaakson, and within only a couple of years the question was no longer of any great relevance for eesti pank. during the second world war, ragnar nurkse focused in his work on inflation and exchange rates. the research that he published on these topics has led many writers to call nurkse one of the main architects of the bretton woods system. after the war nurks

donald l kohn : crisis management - the known, the unknown, and the unknowable remarks by mr donald l kohn, member of the board of governors of the us federal reserve system, at the wharton / sloan / mercer oliver wyman institute conference, “ financial risk management in practice ”, philadelphia, 6 january 2005. * * * in pursuing its policy objectives, a central bank must make decisions in the face of uncertainty related to incomplete knowledge about the evolving condition of the economy and the financial system as well as about the potential effects of its actions. this uncertainty implies that the central bank must incorporate into its decisions the risks and consequences of several alternative outcomes. that is, it needs to assess not only the most likely outcome for a particular course of action but also the probability of the unusual - the tail event. and it needs to weigh the welfare costs of the possible occurrence of those tail events. this risk - management approach has been articulated by chairman greenspan for monetary policy, and it is equally applicable to a central bank ’ s decisions regarding crisis management, the topic i will focus on today. 1 crises are themselves tail events, and the policy response to them is focused on the possibility and cost should the outcome be especially adverse. as i am sure we will hear time and again today, knowledge - reliable information - is essential to managing risks. in a financial crisis, however, information inevitably will be highly imperfect. the very nature of a crisis means that the ratio of the unknown and unknowable will be especially large relative to the known, and this, in turn, can influence how policymakers judge risks, costs, and benefits. although the subject of my contribution to this panel is crisis management, i want to emphasize at the outset that the far - preferable approach to financial stability is to reduce the odds on such crises developing at all. to this end, central banks seek to foster macroeconomic stability, encourage sound risk - taking practices by financial market participants, enhance market discipline, and promote sound and efficient payment and settlement systems. in this arena, an ounce of prevention is worth many pounds of cure. before going further, i should say that the views i will express today are my own and not necessarily those of other members of the board of governors or its staff. 2 costs, benefits, and policy options but even prevention has costs that must be weighed along with its benefits. no financial system that is efficient and flexible is likely to be completely immune from episodes of