The idea is that if the central bank uses an active policy to do so, then it’s to correct distortions that exist in financial markets and ensure that lending rates to businesses and households in the economy as a whole are at the right level to get to the level of activity that would be desirable. If there are rigidities and distortions in the private sector that do not engineer the smooth functioning of the economy, then public intervention is fully justified. It does not add up to manipulation because the reality is not perfect to start with. I’m just now thinking in very abstract terms; this was never discussed at the ECB’s Governing Council. This is my personal take on possibilities; it is not more than that. We didn’t start any discussion about the medium-term future of monetary policy, it’s too soon in Europe to start thinking about that. But I’ll just say it’s a possibility and it can work. We could buy more bonds to enforce it – the 33% 1/8  BIS central bankers' speeches  limit [that the ECB has on buying all of the outstanding stock of a country’s government bonds] is a self-binding decision by the Governing Council. That decision could be slightly changed, theoretically, of course. What about the use of the other non-standard measures? There is a view that some of the tools, such as the Outright Monetary Transactions (OMT) programme, are closely linked with the current ECB leadership and not as much with the ECB itself.
The joke in the American camp at the beginning of the 1980s was that macro is just bad micro, meaning that the models had become dominated by the idea that agents make optimal economic decisions over infinite horizons into the future and that markets therefore tend to be selfequilibrating towards a single steady state. Central banks’ standard models – DGSE [Dynamic General Stochastic Equilibrium] models – have been transformed in many ways, but the 1980s view has still not fully disappeared. This has to change. Economic agents clearly have finite horizons, which impact on their consumption decisions. People do not optimise and plan their lives up to their death. Nor does the financial sector play as important a part in models as it should. The possibility of multiple equilibria has also to be introduced; there are fallacies of composition, there are coordination failures. All these elements have to become part and parcel of macroeconomics; macroeconomics is not just the aggregation of individual decisions by optimising agents, we should not just assume everything moves towards a general equilibrium of competitive markets. The absolute minimum that has to happen is to rid macroeconomics of the imperialism of a certain type of microeconomic foundations; a new core model for macroeconomics has to emerge. If agents act in different ways, we also have to address the question of income distribution. And fortunately there are already models, so-called HANK models, Heterogeneous Agents New Keynesian models, that consider this.