Vice-Governor Fabris gave a lecture for PhD students of the University City University of New York

14/03/2018

Upon the invitation of the City University of New York, Vice-Governor of the CBCG, PhD Nikola Fabris, gave a lecture for PhD students of this university on the topic "Monetary Policy - Modern Trends and Challenges".

At the beginning of the presentation, Vice-Governor Fabris pointed out that monetary policy, although conservative, is subject to evolutionary changes, which even faster acceleration is expected after the global financial crisis. Fabris pointed out that in times when the crises is global and monetary policy is a national one, it is necessary to find a model of global coordination of monetary policy, that is, it is necessary to resolve the conflict between the national character of monetary policy and the need for global actions. In addition, key central banks have to exchange information about instability at domestic markets.

Vice-Governor Fabris pointed to the frequent mistakes made by monetary policy makers relying heavily on macroeconomic models that, due to their many weaknesses, can often mislead them. The fact that no macroeconomic model used by the central banks has not announced a global financial crisis, stands as support of this assertion. The solution, in the opinion of the Vice-Governor Fabris, is in a significant reliance on expert opinion, along with the use of macroeconomic models as a corrective mechanism.

In his presentation, Mr Fabris specifically referred to the dilemma of whether monetary policy should be based on rules or discretion. In his opinion, for central banks with an insufficient level of credibility and a poor history of inflation, it is desirable that monetary policy is run on the basis of rules, in order to "anchor" inflationary expectations. On the other hand, central banks with high credibility need to have a certain space in order to be able to respond to shocks in a discreet manner to stabilize the economy.

Vice-Governor Fabris pointed to numerous challenges in the field of supervision, based on the fact that banking has become a global industry, while supervision is dominantly national. In such conditions, according to Fabris, it is very difficult to correctly determine the risk profile of the bank. In that sense, it is necessary to strengthen the so-called „home-host“ supervision, and it is also necessary to re-examine the standard stress tests, as many of the banks that went through the stress tests suffered bankruptcy after the initiation of the global financial crisis. Mr Fabris also pointed to the challenges of supervising financial conglomerates operating in a large number of countries and covering different segments of the financial system (banking, insurance, pension fund, leasing, and the like). The real picture of the risk profile of these institutions is difficult to ascertain because different institutions are responsible for their different segments. Therefore, he pointed to the importance of conducting supervision on a consolidated basis (at the level of the group), and on a global level. "Supervisors should increase the transparency of the banking system," said Fabris.

At the end of the presentation, the Vice-Governor also spoke about the dilemma whether it is desirable that in the future there will be a slightly higher rate of targeted inflation, in order to leave more room for lowering interests to stabilize the economy, in cases when there is a risk of a recession. He concluded that, although such situation would be desirable, it is unlikely that it will happen, because it would be difficult to convince the public, accustomed to low inflation rates.

The lecture of the Vice-Governor Fabris was organized within the frame of the seminar on Applied Economics for PhD students of the renowned New York University. Among the lecturers at this seminar there are Paul Krugman, Nobel laureate, professors Jeffrey Sachs and Andres Drenik from Columbia University, professor Bojan Jovanović from New York Stern Business School, professor Stephen Morris from Princeton University and others.