On Thursday, February 14, European Central Bank President Jean-Claude Trichet spoke about “Globalization and Monetary Policy” at the 11th Barcelona GSE Economics Lecture. In his speech he discussed the consequences of globalization forces for price stability, and the implications and challenges for monetary policy.
He began his talk by thanking the Barcelona GSE for offering the opportunity to speak, noting, “The school represents a premiere example of how Europe can successfully benefit from globalization and become of powerhouse of knowledge production and dissemination.”
The ECB President then proceeded to discuss the role of globalization in the euro area, asserting that over the last decade the process of globalization has accelerated, with increasing trade integration accompanied by signs of a rapidly growing interdependence of economies also via production and financial market linkages.
The panel of the Barcelona Economics Lecture Series take their seats
“Against this backdrop,” he said, “euro area external trade and flows and stocks of foreign assets and liabilities have been growing strongly. This has been partly as a result of the increasing role of New EU Member States as trade partners, as well as rapidly increasing imports from Asia, especially China.”
While he acknowledged that the recent euro area experience indicates that relative price impacts have been strong over the last decade, he asserts that “Overall, while the empirical evidence would lend support to the idea of a favorable relative price shock associated with globalization, there have been recently signals that the disinflationary impact of low-cost countries on euro area import prices might be coming to an end due to increasing inflationary pressures in those countries.”
“The recent increases in the prices of imports from low-cost countries might be interpreted as a sign that the downward impact from these countries is waning. Moreover, from a forward-looking perspective, price pressures on soft commodities... appear to be a potential source of strong adverse relative price shocks. These developments clearly represent upside risks to price stability.”
ECB President Jean-Claude Trichet speaks
In his closing remarks, the ECB President summarized a simple strategy of how monetary policy can maintain and consolidate the current gains in terms of a low and stable inflation environment, while contributing in reaping the benefits from the process of globalization. “Against the backdrop of a rapidly evolving world economy, monetary policy needs to be firmly geared to maintaining price stability over the medium-term, pinning down trend inflation,” he said.
“A forward-looking policy stance is thus most appropriate, which closely monitors the ramifications of globalization for inflation, looking through temporary changes, being constantly alert and remaining firmly committed to preventing second round effects.”
The ECB President proceeded to answer questions from the audience, composed of over 100 top leaders in business and banking in Catalonia as well as many premiere researchers and academics from the GSE Research Network. In response to a lighthearted question about whether his messages are at times deliberately misreported by media, Trichet quipped that “my words are poetry, and you cannot change a poem”.
The Barcelona Economics Lecture is organized by the Barcelona GSE Research Network and sponsored by Banc Sabadell. Salvador Barberà, Director of the GSE Research Network; Antoni Castells, Minister of Economics of the Catalan Government; Andreu Mas-Colell, Chairman of the Barcelona GSE; and Josep Oliu, President of Banc Sabadell, sat on the panel and gave short introductions at the beginning of the event.
The next Barcelona Economics Lectures will take place on February 27 at the Banc Sabadell. It will feature Hugo Sonnenschein, University of Chicago Professor and President of the GSE Scientific Council, who will speak on "A General Equilibrium Analysis of Rybczynski's Theorem".
From left to right: Andreu Mas-Colell (Barcelona GSE/UPF), Antoni Castells (Generalitat de Catalunya), Jean-Claude Trichet (ECB), Josep Oliu (Banc Sabadell), and Salvador Barberà (Barcelona GSE/UAB)
Full transcript (pdf)
Annex of charts (pdf)
Biography of Trichet (doc)