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Dinner speech. Monetary policy: a journey from theory to practice - an ECB colloquium held in honour of Otmar Issing

Speech by Otmar Issing, Member of the Executive Board of the ECBFrankfurt am Main, 16 March 2006

Dear guests, colleagues, friends

What can, what should one say on such an occasion? Abraham Lincoln, attending a funeral, once remarked: “If General so-and-so had known what a big funeral he would get, he would have died years before”. If I… I must not continue. And to be quite frank, I prefer to be able to hear what is said at such an exceptional moment.

Let me thank you all for joining us this evening. I will have the opportunity tomorrow to extend my special gratitude to all who contribute to the unique colloquium.

Therefore let me just thank you, Jean-Claude, and you, Martin…..

In his “Theory of Moral Sentiments”, Adam Smith wrote: “As ignorant and groundless praise can give no solid joy…it often gives real comfort to reflect, that though no praise should actually be bestowed upon us, our conduct, however, has been such as to deserve it…”.

It is not for me to judge my conduct. Whatever I may have achieved is the result of life-long learning and close cooperation with so many people throughout my professional life. In economics, this process has never stopped. Having become a central banker, it was my privilege to build the bridge between economic research and monetary policy-making. The title of the colloquium captures it nicely: A Journey from Theory to Practice.

From the beginning of my new life as a central banker I was able to benefit from close contacts with colleagues from all over the world who were ready to share their rich experience with me. I always felt it an invaluable advantage of my position, to be in permanent contact with so many leading researchers from all over the world – quite a few of whom are participating in this conference, so I should not start mentioning names.

Our discussions covered a broad spectrum. It helped me to be informed on a first-hand basis on important new developments in the field of economics and especially monetary theory. For me as a central banker, the challenge was to understand progress in research and combine this with hopefully sound judgement of what is relevant and applicable in the practice of central banking.

Let me give just one example. Like all of us, as an academic I was deeply impressed by the convincing logic of the famous Lucas Critique. As a central banker, it influenced my reflections on the potential implications of structural breaks in the context of German unification, and even more so at the start of European Monetary Union. The monetary policy strategy of the ECB – among many other results of research – reflects this important contribution to assessing the high degree of uncertainty under which policy has to be conducted.

At the ECB I have been fortunate to cooperate with outstanding colleagues on the Executive Board and the Governing Council. It has been a constant pleasure to work as a team with my staff of excellent economists, with bright minds and high motivation. Hardly a day has gone by on which I could not learn from reading their contributions and discussing the reasoning behind them. It has been my privilege to present the results of this cooperation to the decision-making bodies, thereby connecting economic analysis and research with policy. This process goes in two directions: input into the decision-making process and impulses from that process for further studies.

We were all privileged to participate in an historically unique experiment: the creation of a new currency for Europe. We had to manoeuvre through uncharted waters and we may not yet have arrived in the Promised Land.

The ECB is in many respects a very special institution. It is not only still a very young central bank, but also a place where people from now 25 European countries work together.

For our young staff, working for a European mission is a fact of daily life. The older generation is still aware of a different time. I vividly remember the day when Christian Noyer, then Vice-President, and I were reflecting over lunch on our national backgrounds. At the same time as his father was a prisoner of war in Germany, my father was a member of the German occupation army in France. Half a century later the sons of the two men were working together in Frankfurt for a common, European project.

To the last days of my professional life I feel that I have had the most interesting job I could think of for an economist. Confucius once said: “Find a job you love and you will never have to work a day in your life”. I hope that this remark will not inspire my employer to think that I should not be paid anymore.

I will still be around here for a few more weeks. Nevertheless, this is a moment of farewell. Should I claim, like Achilles when he – temporarily – withdrew from the Trojan war, “All will yearn for me, all”? Be assured, I am well aware that this is a moment in which you hear only nice words, from those who regret that you are leaving as well as from those who are looking forward to your departure.

I would like to conclude with a famous example of the influence of changes in distance on the judgement of a person.

In March 1815 the French newspaper Moniteur reported on Napoleon`s journey from Elba to Paris:

March 10: The Corsican ogre has landed at Cape Juan.

March 11: The tiger is in Gap. Troops are on their way and will stop him. He will end his miserable adventure as a homeless refugee in the mountains.

March 12: The monster succeeded in proceeding to Grenoble.

March 13: The tyrant is now in Lyon. Horror has caught the people.

March 18: The usurper is some days’ march distant from Paris.

March 19: Bonaparte approaches in a hurry, but he will not succeed in advancing to Paris.

March 20: Napoleon will be in Paris tomorrow.

March 21: Emperor Napoleon is in Fontainebleau.

March 22: Yesterday evening His Majesty celebrated his arrival in Paris. The jubilation cannot be described.

I can only hope that in my modest case the reversal of the sequence does not end where the news on Napoleon started.


European Central Bank

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