Austrian National Bank: Monetary Policy Strategies Must Act

Professional ServicesFinancial Services ♦ Published: May 24, 2023; 23:34 ♦ (Vindobona)

In his speech at the opening of this year's Economics Conference, Austria's National Bank - Governor Robert Holzmann shed light on the importance of a robust and resilient monetary policy in uncertain times. Given the recent financial market turmoil, he stressed that monetary policy strategies must not remain empty words and that the instruments must work.

Austria's National Bank - Governor Robert Holzmann shed light on the importance of a robust and resilient monetary policy in uncertain times. / Picture: © Wikimedia Commons / Bwag / CC BY-SA (

Under the conference theme "Monetary policy in uncertain times: Towards robustness and resilience," experts discussed the challenges of monetary policy in an unstable environment at the 50th Economics Conference of the Austrian National Bank (OeNB) and the 60th SUERF Anniversary Conference. Governor Holzmann emphasized the need to provide clarity on the concepts of robustness and resilience in the context of monetary policy. Precise definitions and accurate wording are critical for communicating and implementing monetary policy strategies and actions, he said.

Holzmann explained that robust monetary policy should work well both in a changing environment and under the influence of shocks. Resilient policy, on the other hand, helps restore equilibrium after a shock, he said. He noted, however, that conventional monetary policy over the past decade has not met these requirements for robustness and resilience. The effective lower bound on nominal interest rates had limited the ability of conventional monetary policy to achieve price stability and made it difficult to return to the previous equilibrium in the euro area after a shock.

The OeNB governor also discussed the drawbacks of a one-sided emphasis on resilience at the expense of robustness. He stressed that a successful return to the previous equilibrium did not necessarily mean that the causes of instability and risks had been sufficiently addressed. Although unconventional monetary policy measures had partially strengthened the euro area's resilience, the real vulnerabilities had not been addressed, he said. Holzmann, therefore, invited participants: inside to discuss new proposed solutions, such as asymmetric reaction functions, makeup strategies to account for past missed targets, structural measures to increase the real equilibrium interest rate r*, and relevant measures to build a true capital markets union.

In light of the recent turmoil in financial markets, Governor Holzmann cautioned against an overemphasis on resilience concerning financial stability policy. He stressed that well-meaning policy responses to financial market turmoil could trigger future financial stability risks, especially if underlying vulnerabilities to shocks are not addressed. In times of crisis, policies and actions must be equally robust and resilient. Therefore, policymakers must be able to use their full scope of action-from regulation to stress testing to orderly resolution. They must also be prepared to do so. Governor Holzmann concluded his opening remarks by warning, "Otherwise, moral hazard looms."


Austrian National Bank