How Macroeconomics Shape the Financial Architecture of Tomorrow
Sometimes, the reason for a paradigm shift can seem completely obvious after it has been discovered. One wonders how the prior held notion could have been resilient to change for so long. A field that does not lack bold assertions followed by major shifts is economics. The most recent financial crises and the Great Recession have raised doubts about the sanity of the system, its instruments and regulations – highlighting the need for a deeper understanding of the underlying forces that affect the financial world. Hélène Rey, Professor at the London Business School and “the economist to watch in 2016” (The Economist), does not shy away from the big issues in her field. She is a Macroeconomist with a capital M and has been turning heads regularly now, challenging decades-old assumption about national monetary systems, international financial sovereignty and global financial cycles. One of her most prominent and provocative contributions was to challenge the conventional wisdom that nations can only achieve two elements of the “impossible trinity”: a fixed exchange rate, an open capital market without capital controls, and an independent monetary policy. In an influential speech given to central bankers at Jackson Hole, Hélène argued that in the context of a globalised mesh of financial flows with the US as a powerful centre, the theory has become obsolete. Instead of the long-standing “trilemma”, today’s financial world faces a simple dilemma – countries can only achieve an independent monetary policy if they take some control over capital flows. At Falling Walls, Hélène discusses how our hyper-globalised world has changed perspectives on national and global economies and how this knowledge can help us prevent the next financial crises.