Lietuvos bankas

Lietuvos banko valdybos pirmininko Vito Vasiliausko įžanginė kalba per tarptautinę mokslinę konferenciją „Prisitaikymas prie neapibrėžtumų kintančiame pasaulyje“ Vilnius, 2020 m. rugsėjo 24-25 d.

Dear guests, researchers, and members of the central banking community,

Welcome to our virtual event hosted by the Bank of Lithuania and dedicated to uncertainty. 

As the famous saying goes, nothing is certain except for death and taxes. And yet, we do not really know who was the first speak these words. Some sources mention Benjamin Franklin, others say Mark Twain. As you can see, we cannot even be certain about this statement on certainty.

Therefore, I think we can paraphrase: nothing is certain except for uncertainty.

The pandemic has surely demonstrated this. Indeed, none of the early warning systems had predicted the global outbreak of the virus. 

Another key takeaway from this crisis experience is that uncertainty and globalization go hand-in-hand. Globalization makes it easier for tail events to ripple throughout the planet – and produce truly global shocks.

In the euro area, uncertainty has substantially increased since 2010. Take a look at the graph, which displays both the index for Economic Policy Uncertainty and the World Uncertainty Index. The sovereign debt crisis, Brexit, trade tensions, and, most recently, the pandemic – all of these factors, contributing to uncertainty, have been shaped and reinforced by globalization.

Today’s event itself is a good example of globalization in action: cooperating with our colleagues from the National Bank of Poland, Centre for Economic Policy Research, and the Central Bank Research Association, we have gathered together scholars from different parts of the planet to discuss uncertainty in a globalized world. 

The timing of the conference is also, I believe, very appropriate. There is uncertainty surrounding almost every aspect of the COVID-19 crisis. In such times, firms pause investment and hiring, and the risk of resource misallocation increases. Consumers tend to save more for precautionary reasons. This behavior can produce long-term scarring effects that are difficult to predict.

For policy makers, such extreme uncertainty poses a substantial challenge. Indeed, it forces them to reconsider some of their core assumptions.
This is not necessarily a bad thing. Uncertainty can be a catalyst for change.

For instance, the COVID-19 shock has caused a shift in mindset in terms of the policy response that is possible on a European level. The EU’s recovery fund will set a precedent for economic integration and risk-sharing in Europe that seemed almost inconceivable prior to the pandemic.

Systemic central banks have acted rapidly and forcefully as well. We at the Governing Council of the ECB have launched the special Pandemic Emergency Purchase Programme, which features some novel and bold modalities safeguarding medium-term price and financial stability. The ECB has also fine-tuned its forward guidance to help markets and the broader society navigate today’s uncertain waters.

But central banks can arguably still do more – and we will discuss this in our first session today.

In addition, speakers will shed a much-needed light on trading firms’ behavior, as well as trade- and macro-related effects of uncertainty. Lithuanian data is used in one of the contributions, helping us learn how firms adjust when trade abruptly stops. This is a key topic for open economies like Lithuania.

Unfortunately, this conference has also been marked by a profoundly heart-breaking and unexpected event. Two months ago the profession of economics suddenly lost one of its brightest minds – Emmanuel Farhi, who was supposed to give a keynote speech here in this conference. Emmanuel covered a wide range of research areas – and displayed a clear motivation to help policy makers make better decisions. We will all miss him dearly. I hope that this conference can build on and celebrate Emmanuel’s legacy.

In this vein, I expect that our knowledge-sharing will help policy makers deal with uncertainty.  We are thus happy to have three distinguished keynote speakers with us, namely Professors Beata Javorcik, Jennifer L’ao and Kalina Manova. They will shed fresh light on the role of informational frictions in business cycle fluctuations, gains from globalization in the presence potential resource misallocation, and local labour market effects of the Brexit vote.
I would like to thank Andrei and Julian from CEBRA, as well as Phillippe from CEPR for their invaluable help in organizing this conference. I also sincerely thank colleagues from the National Bank of Poland: Governor Glapiński, who will deliver welcome remarks as well; and the bank’s Research and International Relations departments. And last but not least, many thanks to the team at the Bank of Lithuania for bringing the idea of this conference all the way to fruition.
To wrap up, I am very happy to see this conference remaining a tradition despite the difficult circumstances – thus adding a degree of certainty to our uncertain times.

Thank you. I wish you fruitful and enlightening discussions.