peter praet : the european central bank's monetary policy - past and present speech by mr peter praet, member of the executive board of the european central bank, at the febelfin connect event, brussels / londerzeel, 16 march 2017. * * * in recent years it has been often said that the ecb has become the “ only game in town ” for stabilising the euro area economy. as governments have had to consolidate their fiscal positions, there has been an unprecedented onus on monetary policy to support aggregate demand. the ecb has responded to this challenge and acted decisively to secure price stability in face of an economic and financial crisis unparalleled in post - war history. but this role, and the unconventional measures we have adopted to execute it, has inevitably put monetary policy more in the spotlight. we are facing intense scrutiny as to how our policy works, its necessity and the side effects it causes. so what i would like to do in my remarks is, first, to explain the current monetary policy of the ecb and its evolution during the crisis. the unconventional measures we have deployed, such as negative rates and asset purchases, are the outcome of a protracted crisis that has unfolded in multiple waves – one that has both worsened the economic situation facing monetary policy and constrained the instruments we have available to respond to it. i will then go on to describe how these unconventional measures are working to ease financing conditions for firms and households, especially through the bank lending channel, and ensure a sustained recovery for the euro area economy. finally, i will touch on the side effects of our measures on the banking sector, and how they can be addressed to ensure a continued, robust transmission of our monetary policy. while my focus will be on what monetary policy has achieved during the crisis, it is also important to underline what we cannot do : central banks cannot remain the “ only game in town ” indefinitely. monetary policy can bring output back to its potential level, and it may even be able to affect that potential by unwinding hysteresis effects, but it cannot durably raise long - term growth – which was on a declining trend even before the crisis. that requires further, determined progress with structural and institutional reforms. the phases of the crisis in 2008 the global economy faced a crisis caused by the coincidence of two trends. the first was the bout of over - optimistic expectations which took hold in several advanced economies in the pre -

where further research is required. i will conclude by reiterating one aspect of the low interest rate and low productivity growth problems that i have mentioned previously — the fact that, for several years, the fed has been close to being “ the only game in town, ” as mohamed el - erian described it in his recent book. 5 but macroeconomic policy does not have to be confined to monetary policy. certain fiscal policies, particularly those that increase productivity, can increase the potential of the economy and help confront some of our longer - term economic challenges. while there is disagreement about what the most effective policies would be, some combination of improved public infrastructure, better education, more encouragement for private investment, and more effective regulation all likely have a role to play in promoting faster growth of productivity and living standards. by raising equilibrium interest rates, such policies may also reduce the probability that the economy, and the federal reserve, will have to contend more than is necessary with the effective lower bound on interest rates. 1 views expressed are mine and are not necessarily those of the federal reserve board or the federal open market committee. 2 see stanley fischer ( 2016 ), “ why are interest rates so low? causes and implications, ” speech delivered at the economic club of new york, new york, october 17. 3 see janet l. yellen ( 2016 ), “ macroeconomic research after the crisis, ” speech delivered at “ the elusive ‘ great ’ recovery : causes and implications for future business cycle dynamics, ” 60th annual economic conference, held at the federal reserve bank of boston, boston, october 14. 4 see, for example, olivier blanchard, eugenio cerutti, and lawrence summers ( 2015 ), “ inflation and activity — two explorations and their monetary policy implications ( pdf ), " imf working paper wp / 15 / 230 ( washington : international monetary fund, november ) ; and dave reifschneider, william wascher, and david wilcox ( 2015 ), “ aggregate supply in the united states : recent developments and implications for the conduct of monetary policy, " imf economic review, vol. 63 ( march ), pp. 71 – 109. 5 see mohamed a. el - erian ( 2016 ), the only game in town : central banks, instability, and avoiding the next collapse ( new york : random house ). 2 / 2 bis central bankers'speeches