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Emphasizing the need for rigorous research, Draghi said central
banks need to carefully weigh their policy steps, giving up
their defense of obsolete approaches while acknowledging gaps in
their knowledge of how new policies work.
Draghi's comments come as the ECB is confronted by an economy
where robust growth is accompanied by anemic inflation. It is a
combination that has raised questions about the validity of
older doctrines on inflation, its relationship to employment,
and central banks' ability to affect price growth.
"(John Maynard) Keynes is often quoted as saying, `When the
facts change, I change my mind. What do you do, sir?'" Draghi
said. "Well, for policymakers, it is not that simple, and
research helps us to decide whether a change in the facts
deserves a policy response or, as we say, we should look through
it."
"We must be aware of the gaps that still remain in our
knowledge," Draghi said in Lindau, Germany, in a speech that did
not discuss current monetary policy.
The ECB is not alone. The minutes the U.S. Federal Reserve's
last meeting showed some policymakers were concerned about the
validity of their models, since inflation was failing to
accelerate despite near-full employment and growth above the
economy's potential.
For Draghi, the dilemma will have to translate into concrete
action this autumn. The ECB's asset purchases, aimed at boosting
inflation, will expire at the end of the year, requiring
policymakers either to extend purchases or start winding them
down.
Economic growth is at its fastest since early 2011 and
unemployment recently hit an eight-year low, but inflation looks
set to undershoot the ECB's target - just under 2 percent - at
least through 2019.
Draghi defended unconventional monetary policy, though, arguing
that it has succeeded in the face of extreme shocks and proved
that central banks remain potent even when interest rates bottom
out.
"Policy actions undertaken in the last 10 years in monetary
policy and in regulation and supervision have made the world
more resilient. But we should continue preparing for new
challenges," Draghi said.
"A large body of empirical research has substantiated the
success of these policies in supporting the economy and
inflation, both in the euro area and in the United States,"
Draghi said.
(Reporting by Angelika Gruber; Writing Balazs Koranyi; Editing
by Larry King)
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