jens weidmann : central bank communication as an instrument of monetary policy lecture by dr jens weidmann, president of the deutsche bundesbank and chairman of the board of directors of the bank for international settlements, at the centre for european economic research, mannheim, 2 may 2018. * * * 1 introductory remarks professor wambach, ladies and gentlemen i would first like to thank you very much for inviting me to speak here at the centre for european economic research as part of the “ first - hand information on economic policy ” series of lectures. when i hear the phrases “ economic policy ” and “ hand ”, i can ’ t help but think of harry truman ’ s famous demand for a one - handed economist. by always assessing everything “ on the one hand... on the other hand ”, the economists clearly got on the then us president ’ s nerves. in this case, it goes without saying that “ first - hand information on economic policy ” has little to do with “ one - handed ” economists. no, “ first - hand ” in this sense means “ directly from decision - makers ”. with that definition in mind, as bundesbank president and member of the ecb governing council, i should obviously talk about monetary policy. it has now been seven years since i delivered my first speech as bundesbank president, and i have given a few more in the meantime. i haven ’ t been keeping count, but the database of public speeches on the bundesbank website now contains more than 150 entries. not all of my speeches, but a large number of them, are partially or even primarily about matters of monetary policy. speeches have become a vital means of communication for monetary policy decision - makers. the six members of the ecb executive board alone have given 150 public speeches over the past year. and speeches are just one means of communication. other channels of central bank communication are interviews, press conferences, and regular publications of reports. close attention is paid, in particular, to the ecb president ’ s introductory statement at the beginning of the press conferences following ecb governing council monetary policy meetings. ecb watchers scrutinise every word. changes in communication are very keenly noticed and analysed. and it is not only what is said but also what is left unsaid that can send a message. “ one cannot not communicate. ” from that perspective, this well - known quote by communication theorist paul watzlawick also applies

has made it easier to pursue an expansionary fiscal policy. this is partly because the interest costs for government loans are very low. i mentioned earlier that an expansionary monetary policy lowers government interest costs. however, the biggest effect on interest costs comes from this trend decline in real interest rates. importantly, it is also this factor that has driven central banks ’ policy rates downwards. another key effect of the low interest rate, which also speaks in favour of fiscal policy, is that more public investments will become profitable. a renewed discussion of the possibilities of fiscal policy in recent years, the low interest rate has given rise to a renewed discussion of fiscal policy in the research community. the reason for this is the observation that the interest rate is lower than growth in the economy. 13 when the government can borrow at a very low interest rate, the debt burden as a share of gdp does not need to increase, provided the economy grows at a sufficient pace. in other words, public finances can show a deficit for a period without it being necessary to raise taxes to address this. growth is enough to ensure that the debt ratio improves without any tightening. it is not only the relationship between the interest rate and economic growth that is important in this context, but also the level of interest rates as such. in several developed economies, long - term interest rates are now close to zero or are even negative, or have recently been so. this means that private actors are willing to lend long - term to the state without any significant compensation, or are even willing to pay to lend. this can, without exaggerating, be described as a pretty generous offer. it is not very difficult to imagine that it is possible to find areas in which public investment may be needed and where the funds borrowed to implement that investment may well have a positive return because the cost is very low or negative. why this has not happened to a greater extent than has been the case is not entirely easy to understand. one probable explanation is that many countries have put in place rules to prevent or counteract increased borrowing. the reasons for 13 see, for example, blanchard ( 2019 ), who also notes – possibly somewhat surprisingly – that the tendency for growth to exceed the risk - free interest rate is not a new phenomenon. a summary of the changed view of the role of fiscal policy is available in lagerwall ( 2019 ). 8 this are good if we look at past negative experiences. however, if this is the explanation, it is natural