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How the Dubrovnik Economic Conference Originated

How the Dubrovnik Economic Conference Originated

articles & speeches

25th Dubrovnik Economic Conference, organised by the Croatian National Bank

In the margins of the 25th Dubrovnik Economic Conference, organised by the Croatian National Bank in June 2019, Marko Škreb, former CNB Governor, gives an account of the origin and beginnings of the conference.

A quarter of a century ago, while part of Croatia was still occupied, Croatian National Bank started a series of International Conferences on topics relevant for transition economies.

Regular participants included Nobel prize winners, like Bob Mundell and Edmund Phelps, high ranking officials from international financial institutions like IMF and BIS, distinguished economists from different countries, from academia and central banks.

The idea for such conferences was developed by Mario I. Blejer, who at that time was working for the IMF and Marko Skreb, then director at the Croatian National Bank.

Subsequent organizers managed not only to maintain high quality of papers and discussions, but improve it.

Macroeconomic Imbalances and EU Convergence

Macroeconomic Imbalances and EU Convergence

articles & speeches

Closing remarks at 2nd Annual CBBH Research Conference “Macroeconomic Imbalances and EU Convergence”

It is a great honor for me to give closing remarks at this important Conference. However, it is a tough task after all those interesting presentations, papers, discussions etc.

The bad news is I am afraid that despite Einstein’s concept of relativity of time I would kindly request your attention for several more minutes of so called absolute Newtonian time. Good news is I will not summarize what has been said so far, but will attempt to give this Conference a broader perspective by answering three questions: 1) When did it all start? 2) Is “converging” towards EU still a valid goal? and 3) Where do we go from here?

1) When did it all start?

I mean when did convergence toward EU start, not macroeconomic imbalances. I guess that since the beginning of time we had imbalances even without being aware of them or being able to measure them. But what about convergence? Convergence towards EU started with the Fall of the Berlin wall. Almost to a day (09. November 1989.), three decades ago a historical event happened for the World, more so for large part of Europe and especially for this part of Europe. The Berlin wall, symbol of divided Europe but Cold war as well has been demolished. This physical and ideological divide which stood from 1961 to 1989 has fallen. Thus, started the process of transition and consequently EU convergence. True, the then Yugoslavia was not part of the Warsaw Pact, it was not strictly speaking “behind the Iron Curtain”, but it was not a liberal democracy with flourishing and efficient private ownership market economy either.

Will there be a ”new normal”?

Will there be a ”new normal” in monetary policy any timesoon?

articles & speeches

Will there be a ”new normal” in monetary policy any timesoon?

Firstly, one would have to be more precise what is mentby normal in this context. By “normal” we usually considersome past “average” of what we were used to or what most of us perceive as normal in behaviour or dress code. Something we can focus on and rely as a kind of benchmark.

In economics and in monetary policy benchmarking is more difficult than in medicine or meteorology. There are a lot of reasons why standards in economics are more difficult (to be explained later). But it does not mean we do not have views on “normality” in economy. For european economies, especially EU members (and candidates for EU), Maastricth criteria are an attempt to have standards which can be considered normal macroeconomic numbers.

Yes, they are specific conditions for entering the Eurozone, but their importance is larger than the Euro itself. Before the Global Financial Crisis (GFC) most economists would agree what “normal” is. For example, most advanced economies would consider as “normal” inflation around 2%. The number was somewhat higher for emerging economies, but usually normality would be a single digit inflation.

For inflation around 2% nominal interest rates around 5-6% were considered “normal”. And there was a “normal way” of conducting monetary policy to achieve those values. It is called inflation targeting, which linked with central bank independence and indirect instruments of monetary policy were the standard.

From the 1980-ies until 2008 a lot of central banks switched or were planning or at least aiming to achieve this standard. So normality was, for central banks, to focus only on a single goal and price stability and inflation targeting were the best ways to achieve it. Economies were growing steadily and everything seemed to be “just right”. Some referred to it as “great moderation”. Others considered that ideally central banking should be “boring”. Flexible exchange rate, indirect instruments of monetary policy, deregulation and liberalization of financial markets were the way to run the economy and conduct monetary policy. Following dictums from the “Washington consensus” was recommended to almost all countries around the globe, from Australia to US, from Albania to Zimbabwe. But, GFC and its aftermath have destroyed this view. Central banking has changed and is still changing without clear direction how. The question therefore is what is the new normal and/or will there be a new normal if there is not one now, during rapid changes?

The Faces Of Convergence E-Book

The Faces Of Convergence E-Book

articles & speeches

“The Faces of Convergence” is a collection of 34 short essays

The Faces of Convergence e-book is a collection of 34 short essays by people who made major contributions to the process of convergence in the countries that joined the EU in the three waves of eastern enlargement. Contributors come from business, government, banking, research, higher education, and civil society. They share views on the impact of the EU on the convergence process.

The 2004 EU expansion must be viewed as part of a broader process of convergence of the Central and Eastern European countries toward Western Europe. We should start at least from 1989, with the fall of the Berlin wall, a symbol of the collapse of the communist regime. As the Iron Curtain fell, most former communist countries chose membership of the EU as their ultimate goal.

Geographical proximity was an important, but not the only, contributing factor. Most countries wanted to join the EU for its high standards of living, political democracy and more generally a „human“ way of living. Compared to the rest of the world, the EU has the highest quality of life.

Therefore, joining the EU has been a bright beacon, helping navigation along the paths of post-communist reforms for many. With the Global Financial Crisis, the light from this beacon was dimmed. It was almost extinguished during the Sovereign debt crisis in Europe. But, by 2014, this crisis had mostly come to an end and the EU still had its 13 newest members. The process of integration is not, however, yet complete, as not all of these members have joined the Eurozone. For some new EU members the Euro-crisis affected the „attractiveness“ of this later step of joining the Euro. But as European financial system has been considerably reformed since then, with new institutions, new mechanisms and a broader range of monetary policy instruments applied by the ECB, one should expect enlargement of the Eurozone to continue.

Should Governors Be Worried?

Should Governors Be Worried?

articles & speeches

Changes and Challenges in Central Banking

Central banking has a three hundred-plus-years history. It would be quite a walk to do its full length. But, as some people decide to walk only part of the famous Camino de Santiago to find their spiritual enlightenment, I have decided to walk with you only through the last part, specifically the last two decades.

Your Excellencies, honourable governors, ladies and gentlemen. I am deeply honoured and feel privileged to stand in front of you today to deliver the 2018 Ante Čičin-Šain lecture. Ante Čičin-Šain passed away exactly ten years ago. It is wonderful that his memory is kept alive in this way.

As Croatia’s first Ambassador to Ireland, Ante Čičin-Šain was highly committed to developing Irish-Croatian relations and was enormously successful in doing so.  His success was attested to during his tenure as Ambassador and later by Ireland’s unstinting support of Croatia at all crucial points in Croatia’s path to full E U membership.

Indeed the unique part he played in promoting Croatian-Irish relations was recognised by the Irish Government when, after he had retired as Croatian Ambassador to Ireland, it appointed him as Ireland’s first Honorary Consul in Zagreb.  And I should say that nobody could be more pleased than Ante would have been to see that today Croatia is fully understanding and wholly supportive of Ireland’s position in the context of the challenges posed to the entire E U, but Ireland in particular, by Brexit…

Cashless Society And De-Dollarization In Ukraine

Cashless Society And De-Dollarization In Ukraine

articles & speeches

What is missing from present discussions?

The National Bank of Ukraine stepped on the track to a cashless economy aiming at reforming the financial system, improvement of the transmission mechanism, and reduction of the underground economy and corruption. A substantial part of money in the Ukrainian economy is estimated to be foreign cash in circulation.

The aim of this paper is twofold. First, it will examine whether all central banks really need a well developed brain. Second, it will give some general guidelines on how central banks should proceed if they intend to develop and maintain a healthy brain.

The focus in this paper will be mostly on central banks in less developed economies and some emerging economies, especially transition ones. There is no need for elaboration of the importance of research in advanced economies’ central banks or monetary authorities. It is true that a lot of emerging market economies have well developed “brains”. However, some may need to pay more attention to its active use.

This paper is primarily the result of the author’s own experience attained while working in or visiting central banks of Central and Eastern Europe and Middle East. But, conclusions could be applied to a broader population of central banks, mutatis mutandis.

“Negative mirage” was first mentioned by Professor Robert Mundell (awarded a Nobel Prize in Economic Sciences in 1999) at his lecture in the Croatian National Bank Conference in 1996, Mundell, (1997). He went on to explain that a mirage is something we see but is not there, like Fata Morgana in the deserts. Economists like to use the term “negative” so we speak about negative growth rate, not a “fall” rate. Thus, a negative mirage is something that is there, but we do not see it. He was referring to GDP in transition economies. In the early to mid-nineties, official statistics would show a deep dive in GDP in transition economies, but reality was not as bad as statistical numbers pointed to. Official statistics do not always capture all economic activity, especially in so-called transition economies, whose structure was changing too rapidly. It is worth noting that statistical omissions in economics are not limited to post-socialist economies. Recently a lot of emerging countries have “increased” their economies by a so-called rebasing of GDP. The most notable example is Nigeria, who increased its
GDP by 90% in 2014.

Countries where dollarization was never a problem are typically those whose economic history is not burdened with inflationary periods, currency depreciations, and banking crises. If a small percentage of assets are held as FCC, this indeed should not be a top priority for policy makers.

Monetary Policy Peer-To-Peer Workshop And Governors’ Forum

Monetary Policy Peer-To-Peer Workshop And Governors’ Forum

articles & speeches

Caucasus and Central Asia (CCA)

One can hope that in the CCA economies the soft budget constraint is no longer an issue for private companies and state-owned ones. However, as a rule, one economic agent can often still enjoy soft budget constraint – the finance ministry.

First of all, I would like to thank the organizers for this kind invitation and opportunity to express my views on the issue of the monetary and exchange rate policy frameworks and strategies in the Caucasus and Central Asian (CCA) countries.

As this area is pretty much Fund’s “bread and butter”, I will not try to present a complete overview, a comprehensive guide with the best practices or new econometric evidence on what works best, for a lot of reasons. First, I do not believe that there is a one size fits all frameworks. We are discussing eight quite different economies.

I even do not believe that for the fast-transforming countries like yours one framework might be optimal in the long run. Second, my comparative advantage is not in econometric studies, but in the hands-on experience I acquired both as the Governor of the Croatian central bank and while working at various central banks mostly as an IMF consultant. I have been advisor to governors or on missions to countries with currency boards, countries moving to inflation targeting, countries that are classified as money targeters, managed floaters, you name it.

But my experience in the CCA countries is limited. I have been on short missions to two of the eight countries we are discussing today (Armenia and Georgia), but I know relatively little about them so I cannot offer any specific advice. In addition, very much in line with the IMF Charter, I think that the choice of the monetary and exchange rate frameworks is for you to decide. Finally, in an aim to be complementary to the IMF presentation, I have omitted general and academic discussions on the choice of the exchange rate policy, such as the famous impossible trinity, etc. I will try to get your attention by focusing on my own experience and make you think about your own country and choices you have made and will have to make in the future.

Independence Of Central Banks

Independence Of Central Banks: Myth Or Reality

articles & speeches

Association of African Central Banks, 2014 Symposium

Initially the concept of independence of central banks was focused on the central bank’s monetary policy objective. Since the early 1990s was a broad consensus that for a central bank inflation or price stability was an overarching goal.

It is my great pleasure to participate in your Symposium with the topic of the Session: “Fiscal -Dominance and Independence of Central Banks.” I would like to start with a caveat.

I have no ambition for this speech to be an academic contribution or give some firm policy recommendations. I have good reasons to be humble about the goals. First, you are central bankers, experts in your field and I am sure that no one knows the functioning of your economies, central banks and relations with finance ministries better than you do.

Second, the African continent is so vast, economies are very different and so are monetary regimes (from inflation targeting to monetary unions with pegs to the euro). In spite of an overall improvement in inflation and macro stability in general, the fiscal situation ranges from double-digit fiscal deficits to fiscal surpluses and the inflation record is equally diverse. Some countries (or monetary unions) have modern laws with a high degree of de iure independence; some laws are not so modern. Third, I admit, my knowledge about African economies is limited.

This presentation consists of two parts. First, I will discuss independence and fiscal dominance as well as their relation. In the second part, I would like to share some of my own views and experiences on this topic, the lessons that I have learned, first during my term as governor in my home country, Croatia (1996-2000), and afterwards while following central banking developments. As they say, once a central banker, always a central banker.

Futuristic View Of Banks In Albania

Futuristic View Of Banks In Albania

articles & speeches

Speech at the Albanian Association of Banks New Year Dinner

It is a great privilege and a special honour to have an opportunity to address this gathering tonight.

Banks in Albania, as I have recently learned, have a long history. The AAB, as you know, has just published a wonderful book entitled Historical View of Banks in Albania. Banking activity has been documented since 1839, and a central bank formed in 1863. But no more history, I am personally very much interested in the future as I intend to spend the rest of my life there. And the title I gave to this speech: The Futuristic View of Banks in Albania is a direct reference to the book I have mentioned. I am quite nervous about this speech because I am not sure if I will deliver the topic I have chosen tonight.

Before I give you the opportunity to judge, let me ask you a question. How much can we really know about the future? If you promise to keep it for yourselves and not to tell it to my boss or our new heads at the parent bank in Milan, I will share with you a very telling story. The story goes like this. A then young psychologist by the name of Phillip E. Tetlock did not believe much in expert forecasts. So in 1984 he started an experiment. What he did is ask about 300 experts in many fields, including government officials, professors, journalists, etc., to make more than 27,000 predictions about the future. He asked quantifiable, verifiable questions. In 2005 he published the results in the book entitled Expert Political Judgment. His findings? Experts’ forecasts were only slightly more accurate than chance. Let me repeat this once again: slightly more accurate than chance. Interestingly, they were worse than basic computer algorithms (which extrapolated trends).

In other words, experts’ judgments about the future are not very useful. We tend to believe them, we make them all the time, I earn my living by making forecasts, and yet, as Tetlock demonstrated, they are not very accurate. I think we all lost a lot of faith in forecasting when a black swan appeared in the form of the crisis that we are still in today. The point is: we all need to be much more humble about our ability to predict complex and dynamic systems that our economies are. Long time ago, the world was simpler, easier to predict. So, let me share with you one of my favourite sayings: the future is not what it used to be. Sounds ironic, but it is true.

Prerequisites For Reform SEESOX And Bank Of Albania Seminar

Prerequisites For Reform SEESOX And Bank Of Albania Seminar

articles & speeches

Regional High‐Level Seminar on the Subject of South East Europe

We have heard two papers that explore in detail the role of institutions and limited fiscal space. So, the question we are pondering on is how to have more fiscal space in case we may need it (hopefully in the future) for discretionary fiscal stimulus. This reminds me of an old joke. A gentleman got lost in the Irish countryside and he asked a farmer how to get to Dublin. The farmer replied: If I wanted to go do Dublin I definitely would not start from here.

1. Role of the state in the economy.

I would like to start with the following point. Maybe the term “fiscal space” does not accurately describe the situation, not only in SEE but in a lot of other countries as well. Why? Fiscal space is obviously a concept with a positive sign in front of it. Being an economist I am used to negative values such as: negative real interest rates, negative growth rates (which of course in plain English means a fall), negative trends in general!

So, negative is a variable which goes “south”, i.e. falls. Not being a physicist, I was reluctant to propose the term negative fiscal space. For me it was difficult to imagine a negative space. Therefore the closest term I managed to find is a fiscal black hole! There is usually a beam of light that travels from its centre. But not even a beam of light can escape the strong gravity of a black hole.

 

2. Role of the state in the economy.
Actually, this is not only about fiscal space, which is a subtopic, but it is broadly related to the role of the state in SEE, and yes, it will largely overlap with the next session. Therefore I am pleased that the program has been changed and that political constraints are after our session.
I would say in brief that the main problem with fiscal space in SEE is the attitude toward the role of the state in the economy in general. We will need to change such views. This will take a long time. My general opinion (which I will not try to prove rigorously here), is that SEE, or most of the post socialist states, even 20+ years into transition still have very biased views on what a sound fiscal position is and, more generally, what the “appropriate” role of the state in the economy is. Let me give several examples of the latter problem…

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