Deputy Governor for Monetary Policy Delivers Presentation on Currencies At International Conference

Deputy Governor for Monetary Policy delivers presentation on currencies at international conference speeches by deputy governors monetary policy Listen

Deputy Governor for Monetary Policy, Thórarinn G. Pétursson, delivered a presentation at The Reykjavik Economic Conference held at Harpa, organized by the Central Bank of Iceland in collaboration with The Center for International Macroeconomics at Northwestern University in Illinois.

In his presentation, entitled “Currencies: Buffers or amplifiers of shocks – The ISK’s journey from a source of shocks to a shock absorber,” Thórarinn discussed how a flexible exchange rate can sometimes facilitate the economy’s adjustment to economic shocks, but can also at times be a source of economic instability.

He reviewed how fluctuations in the Icelandic króna exchange rate were more likely to amplify business cycles prior to the financial crisis nearly twenty years ago, while there are indications that the nature of exchange rate fluctuations changed after the crisis. Thus, the flexibility of the króna, for example, played an important role in the economy’s adjustment to the rapid growth of tourism in the middle of the last decade and during the pandemic at the beginning of this decade. The exchange rate of the króna therefore appears to function more effectively as a shock absorber after the financial crisis, which he attributed to a stronger external balance position of the economy, lower foreign exchange risk on the economy’s balance sheet, and, not least, to an improved macroeconomic policy framework and greater credibility of economic policy.

Currencies: Buffers or amplifiers of shocks – The ISK‘s journey from a source of shocks to a shock absorber- slides (2.37 MB) Currencies: Buffers or amplifiers of shocks – The ISK‘s journey from a source of shocks to a shock absorber- speech (249.12 KB)