not there, and this in my view will become more and more clear as marketbased finance continues to grow to a huge size. the approach will need to become much more intrusive, and will be a return to the past in that respect. what will that entail? controlling the excesses of finance cannot be achieved only with monetary policy interest rates. we need to expand the concept of leverage to other segments of the financial system, particularly synthetic leverage. i mean leverage which is not easily seen in the balance sheet, because it ’ s built up with derivatives. it ’ s not seen but it ’ s very relevant for banks and for the economy, as we saw during the crisis. 5 / 8 bis central bankers'speeches the obstacles to regulating markets, and not just banks, are not so much technical ; the obstacles are more political or ideological. it requires more regulation and supervision by not only central banks, but also in some cases governments. it is politicians that often need to enforce macroprudential measures, and in some countries some governments do not want to use them. another aspect that is different now is that we have in our economies too much finance. there is a strand of literature showing that after certain limits there are diminishing returns in the expansion of finance. and to tame these imbalances we will also need macroprudential measures. you have talked about the need to reform economics too. what do you have in mind? big changes are happening, we are going in the right direction, but in my view we are not there yet. the joke in the american camp at the beginning of the 1980s was that macro is just bad micro, meaning that the models had become dominated by the idea that agents make optimal economic decisions over infinite horizons into the future and that markets therefore tend to be selfequilibrating towards a single steady state. central banks ’ standard models – dgse [ dynamic general stochastic equilibrium ] models – have been transformed in many ways, but the 1980s view has still not fully disappeared. this has to change. economic agents clearly have finite horizons, which impact on their consumption decisions. people do not optimise and plan their lives up to their death. nor does the financial sector play as important a part in models as it should. the possibility of multiple equilibria has also to be introduced ; there are fallacies of composition, there are coordination failures. all these elements have to become part and parcel of macro

and financial stability department, which is state of the art. and i am proud of course of having participated actively in all of the policy decisions that happened since i came here in 2010, especially those that put a 7 / 8 bis central bankers'speeches stop to the existential crisis over the future of the euro. is there any decision that the ecb took that in hindsight you regret? the rate hike in 2008 was an overreaction. there seemed to be some justification at the time for the increase in rates in 2011, though in hindsight it was clearly premature. that ’ s it, i already said it in the speech. will you stay in germany or are you going to go back to portugal? i ’ m going back to portugal. in june, i will be at the ecb conference in sintra. normally we invite former members of the executive board, so i hope they will continue to invite me. particularly as i don ’ t intend to go and work for any private financial institution. i will do some postgraduate teaching in madrid. i always hoped i would have the opportunity to be a free intellectual. in my career i never had that luxury. i always thought and dreamed about it, and i hope to have a sufficient number of years to satisfy that ambition. i am going to have a blog. it ’ s usual in the united states ; in other places, not so usual. i will comment on general questions about the future, about europe, about macroeconomics. what will your first post be about? i am still hesitating. it could be about the future of monetary policy and the points i left out in my recent speech, from neutral interest rates to yield curve control. are there any rules that bind you in terms of what you can write about? beyond the ecb rules what will bind me is european decorum. 1 the role of central banks in prudential supervision 2 see funke, m. schularik, m. and trebesch, c. ( 2016 ) “ going to extremes : politics after financial crises, 1870 - 2014 ” in european economic review, 88, 227 - 260. 8 / 8 bis central bankers'speeches