Bank of Israel Governor Prof. Amir Yaron participated and spoke at the annual economic symposium hosted by the Federal Reserve Bank of Kansas City at Jackson Hole in the US.  The conference included governors of the leading central banks, heads of international financial institutions such as the International Monetary Fund and the World Bank, and senior economic researchers and academicians from around the world. This important economic symposium focused this year on "Challenges in Managing Monetary Policy A Decade After the Global Financial Crisis".


The symposium was opened by Federal Reserve Chairman Jerome Powell.  The concluding panel closed with a speech by Bank of Israel Governor, Prof. Amir Yaron, entitled, "Monetary Policy Challenges and the No Free Lunch in Government Debt". The full text of the Governor's speech inEnglish, and the slides that accompanied the speech​, are attached.


The Governor discussed main issues that are on the global economic agenda, focusing on issues that are relevant to the Israeli economy.  He discussed the challenges faced by monetary policy makers in small and open economies (SOEs), and praised the structural strength of the Israeli economy while warning of the implications of a possible increase in the debt to GDP ratio and the costs inherent in it.  The Governor based his remarks on research he has conducted, as well as on prominent studies presented at the conference, and previous research from Israel and abroad.


The following are the main points of the Governor's remarks:


  • Monetary divergence challenges independent monetary policy for SOEs. These challenges are here to stay.
  • Data dependency is a challenge for conducting and communicating monetary policy.
  • The sensitivity of the stock market reaction to macro news announcements is countercyclical, and depends on expectations regarding monetary policy.
  • In interpreting market data, central bankers should account for the cyclical position of the economy, and attempt to disentangle the feedback between economic expectations and market projections about the central bank’s behavior.
  • Increasing the supply of safe assets (via government bonds) can reduce liquidity premia, but raises corporate risk premia, and this trade off may not be favorable, especially for SOEs.
  • There are risks embedded in safe assets, and increasing their quantity in the form of increased debt is not likely to come without fiscal costs.​