Wednesday, June 15, 2022
HomeEconomicsThe Grumpy Economist: ECB word salad hubris

The Grumpy Economist: ECB word salad hubris

The  Speech by the ECB’s Isabel Schnabel, advertised on the official ECB twitter stream 

caused a characteristically grumpy outburst from me. Savor the ECB’s tweet in all of its glory: 

We will not tolerate changes in financing conditions that go beyond fundamental factors and that threaten monetary policy transmission.


In December of last year, we made clear that we would not tolerate price adjustments that would undermine the transmission of our monetary policy

So now central bankers know what “fundamentals” are in all asset prices, and “will not tolerate” bond prices (aka “changes in financing conditions”) that deviate from their idea of “fundamentals.” And I thought they had an inflation mandate, and a short-term interest rate “tool.” 

The contrast between the vision of detailed machinery that central bankers think they know how to control and any actual scientific knowledge of the monetary and financial system is gaping. The one thing I actually know as an “expert” is how little anyone else actually knows. Nobody really knows what the “monetary transmission mechanism” is to start with, let alone how “financing” conditions affect it. And if Ms. Schnabel knows reliably how to distinguish prices from “fundamentals” I know a lot of hedge funds that would pay her a whole lot more than the ECB does! 

As one way to see that gap, I compiled the following list of central-bankerese from her speech. At a minimum, if you want to be a central banker, learn to talk like this. As a human, ask yourself if anybody actually knows what any of this word salad actually means, let alone if the ECB has the technical knowledge to control it. (Some, of course, is just complex euphemism.) If I knew more computers it would be great fun to program up an AI that can replicate a central banker. It shouldn’t be that hard, because nobody knows what any of this means! 

Your central banker word-salad vocabulary list: 


vulnerability to fragmentation risks 

disruptive and self-fulfilling price spirals 

financing conditions 


national borrowing conditions


sudden break in the relationship between sovereign yields and fundamentals

non-linear and destabilising dynamics

market liquidity or speculative market behaviour in the form of self-fulfilling market dynamics

markets find it difficult to price risk

uncertainty is so high that risk premia become indeterminate

Market dysfunction

liquidity conditions 

demand for bonds outpaced supply…, giving rise to disruptive market dynamics and drastic price swings.

specific risk factors that may spur multiple equilibria and self-fulfilling market dynamics

financial contagion

financial stress 

destabilising capital flows

domestic and external imbalances

Markets started to price risk more in line with fundamentals

adjustments were taking place in a rapid and, at times, disorderly fashion

Risks of a destabilisation of inflation expectations 

disorderly repricing 

[a comment on this one: is there a world in which everyone knows they’ll lose 1% per day but just sit still? All repricing is “sudden” and “disorderly!” Finance 101.] 

underlying vulnerabilities

financial market fragmentation

public risk-sharing through a permanent fiscal tool at European level,

[watch your wallets] 

destabilising market dynamics

market developments



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