olli rehn : monetary policy in low and high inflation environments speech by mr olli rehn, governor of the bank of finland, at the bank of finland's 3rd international monetary policy conference " monetary policy in low and high inflation environments ", helsinki, 26 june 2024. * * * presentation accompanying the speech ladies and gentlemen, dear friends, it is my great pleasure to welcome all of you to the bank of finland's conference on monetary policy in low and high inflation environments, and especially those of you who have travelled from further afield to be here in helsinki. i am more than delighted to welcome our distinguished speakers and participants from different continents, and very much looking forward to an inspiring exchange of views today. in my opening remarks, i will first talk about the exceptional price dynamics over the past crisis years, and then provide some personal reflections on the ecb's upcoming monetary policy strategy review. to set the stage, let me illustrate the brief history of inflation in the euro area by dividing the last quarter century of the euro into three periods. slide 2. three periods of inflation in the euro era, 1999 – 2024 these are, on average : 1 ) at around 2 % during the waning great moderation in 19992009 ; 2 ) slightly above 1 % during the post - financial crisis below - target inflation in 2009 – 21 ; and 3 ) above 6 % during the years of accelerating inflation since 2021. each of these periods had a specific set of inflation ( or deflation! ) drivers and price stability anchors, and thus specific price dynamics and specific policy issues. the common feature in the advanced economies is that inflation has been mostly due to supply disruptions and sharp increases in the prices of food and energy, as concluded by ben bernanke and olivier blanchard in their recent paperi. on the other hand, over time inflation became more broad - based and stickier, leading to higher wage inflation on a tight labour market. fiscal policy also played a role in fuelling demandside inflation, especially in the united states. while we have seen some less convincing data on inflation recently, in a moving context, we must see the forest for the trees. considerable progress has been made in bringing inflation down towards the ecb's symmetric 2 % target, especially since september 2023. monetary policy and financing conditions have been held tight to curb demand, which has helped keeping inflation expectations firmly anchored. slide 3. monetary policy anchored inflation expectations at 2 %

to the ecb's upcoming strategy review. given our primary mandate, the focus of the review should, in my view, be on achieving a better understanding of the inflation dynamics of the past few years, and of the secular trends that keep changing the operating environment of monetary policy going forward. to begin with, it is essential to analyze the large and persistent supply shocks that the euro area has encountered in recent years. but we must also have an open debate on the role of demand shocks, including monetary and fiscal policies. the jury is still out concerning the relative importance of their contribution to the period of high inflation. by the way, the same goes for the period of low inflation : did we come out of the liquidity trap as a result of our own policy actions, or was it due to the pandemic - related supply shocks and strong fiscal stimulus? a further key question is whether we should react to supply shocks in a different way than in the past few years. to what extent can we, as a central bank, even influence supply - side issues? i think a good approach is to follow the established wisdom of monitoring the extent to which supply shocks cause second round effects. 3 / 5 bis - central bankers'speeches turning to secular trends, one thing that has fundamentally changed since our last strategy review is the geopolitical landscape. geopolitics will continue to shape the operating environment of monetary policy in the years ahead. the changes that are taking place in the world economy, from trade wars to supply chain diversions, are likely to increase the probability of supply shocks and inflation volatility. but geopolitics, and especially the ongoing geo - economic fragmentation, may also have a strong impact on the new equilibrium that emerges once the current interest rate cycle is completed. and this brings us to the question of the level of the long - term real natural rate of interest, r * or the equilibrium interest rate. this has been much discussed among central bankers, including at the bis and imf. slide 5. natural interest rate is a necessary analytical framework the chart shows various estimates of the natural rate for the euro area. according to recent studies, it is typically estimated to be somewhere between 0 % and 1 % in real terms in the euro area. ii i, for one, don't think of the natural interest rate as a certain exact number, nor as a viable concrete tool for devising monetary policy, but instead as an illustrative and even