Michael Woodford, BBVA Foundation Award in Economics: “The control of governments on central banks causes unpredictable policies”

—You introduced the so -called ‘unconventional monetary policy tools’

—My book tried to teach how central banks could conduct themselves very systematic, very scientific and based on a rigorous analysis. He asked me about the ‘Forward Guidance’. The book emphasizes the role of people’s expectations. The idea is that a central bank must, in effect, explain to the public what will determine its policy in the future.

—Without the new monetary paradigm, would we have seen another inflationary crisis such as the seventies in Europe?

“There are reasons to think so.” One of the problems of the seventies was that there was a system – Beton Woods – that broke and we entered a scenario in which it was difficult to know what the objectives were. There were central banks but they didn’t talk about what they were doing. This made salary negotiations, for example, were difficult because people had to take into consideration the fact that they did not know what inflation would be in the future. They logically protected themselves, and this hindered negotiation and was harmful to the economy.

“We are talking about expectations.” That is why he has investigated the relationship of neuroscience and macroeconomics?

—If everyone in the market was perfect and had no limitations in their ability to make rational decisions we would not need a monetary policy. The answer, I think, is related to creating an environment in which people’s cognitive limitations do not interfere with the economic mechanism more than they should.

—That a pandemic and a war in Ukraine inflation is at 2.5% in the Eurozone. Is it a success for the credibility of the ECB?

– We had great disturbances, citizens did not know what would come in the future and, again, prices had to be modified, but did not flow into a spiral out of control. Without the new monetary policy framework, I think we would have seen a world more similar to that of the seventies.

—It very spoke in Europe about the lack of financial integration. Do you agree?

—I think there is a problem with wanting a great monetary unit as long as you are not willing to unify the financial and fiscal system at the same level and to some parts of the union responsible for the debt of others. If they believe that it will not be really possible, then they may not share the same currency either.

—Ans Spain leads the growth of the eurozone but the GDP per capita is stagnant. Does the big economic figures not apply to day to day?

—Create the conditions for people to be easier to do things. With luck, also so that someone comes up with good solutions to raise productivity.

“Does central banks also need democratic control?”

“I don’t defend a type of monetary policy in which everything is done behind the public, in which ‘intelligent people lock themselves in a room and do what you have to do.” In fact, I think it is very important that central banks explain people why they do what they do. Now, its independence is very important, mainly if the story is examined. The circumstances in which central banks have been under great influence of governments have led to unpredictable policies.

—Trump has openly challenged the independence of the Federal Reserve

“If I ask me what I think about going back in time (in monetary policy), I will tell you that we have a president who has never understood that all this was going.”

—The Argentine case … Milei said he wanted to dynamit the Central Bank

“Someone who wants to close a central bank would ask what the alternative is.” In Argentina they tested with a system that consisted of binding the peso to the US dollar, but failed to work. He would recommend that he give more autonomy to the Central Bank than he has historically had. Why not try that alternative?

—In 2000 he already theorized about virtual money and wondered what the role of tomorrow’s monetary policies would be. Is the future here with cryptocurrencies?

—In my opinion there is nothing too beneficial in the use of cryptocurrencies as new payment methods. I think it makes sense to make a national currency that is used in most transactions. That was one of the reasons, after all, to have a monetary union.

—They say that the Nobel could win

“It’s not something I would reject, but I have no way of knowing what the possibilities are.”