failing banks at the same time reducing the impact on the taxpayer now, this account of how policymakers and researchers have interacted in the past ten years shows how indebted the former are to the latter from my point of view, one can draw five lessons for policymakers first, sudden shocks often make visible the flaws in our policy frameworks and challenge the explanatory power of existing theorys in ways that have been previously overlooked.

but analysis conducted by researchers and embraced by policymakers remains essential in designing the policy response so we shouldn't be overcome by the mistrust that failures may produce. second, the policy response that has it's foundation in rigorous research is less prone to being impaired by political compromise and easier to explain to the general public third, the facts change, i change my mind what do you do, sir? for policymakers, i like this.

but for policymakers, it's not thr a change in facts deserves a policy response or, as we say, we should look through it fourth, we had the world changes as it did ten years ago, policies, especially monetary policy, needs to be adjusted that's obvious for most people, but not everybody. such an adjustment is never easy requires an unprejudiced, honest assessment of the new realities with clear eyes unincouple be d

unincouple bered by proevious paradigms. our mainstream economic models have little to say about the shocks, the distributional impact of policies on how or how an exit affects economic performance. policy actions undertaken in the last ten years in monetary policy, regulation and supervision have made the world more resilient, but we should continue preparing for new challenges now, the -- this is not a lesson, but remark the changes we discussed, profound as they are, often hinge on one fundamental idea. the natural question to ask is whether such an idea sprang out as a response to a specific policy problem, or was rather conceived previously in an entirely different unrelated intellectual environment,

perhaps addressing a different set of problems. it's a question that is especially relevant in economics when previously held consensus views change it's also a question that is unlikely to have a precise answer let me use the 1939 words of abraham flexner, the first director of the princeton institute for advanced study, soon to be joined by einstein, by others in the post-war time almost every discovery has a long precarious history. someone finds a bit here, another bit there. a third step succeeds later, and thus onward until a genius pieces the bits together and makes the decisive contribution. well today, i've had the

privilege lj of addressing such people, geniuses who have pieced the bits today and made decisive contributions. thank you. [ applause ] >> hello i'm carolin roth you have been watching ecb president mario draghi speaking in linde dau, germany this is "street signs. wanted to outline what he has been saying to the audience. he says unconventional policy was a success but knowledge gaps remain saying unconventional monetary policy has been a success on both sides of the atlantic he also says that sudden shocks make flaws visible in policy framework. we didn't see too much of a reaction when it comes to the euro/dollar on the back of his comments we saw a bigger reaction when it came to the pmi numbers. the euro/dollar changing hands

at 1.1775. let get initial comments and reaction from ken watra from t.r. lombard any major takeaways that rock your boat? >> they don't rock my boat personally i don't think they'll be rocking the market's boat either it's a backward-looking speech the input of research into policymaking for markets looking for indications of how quickly the ecb might announce the tapering of asset purchase and the form it would take, this was never the speech to deliver those. it may be the same at jackson hole, an important policy meet two weeks after that event we may hear something similar we heard back in june at the sintra event. but i don't think we will get fire works in the immediate future. >> the reuters story saying that the ecb president, mario draghi, will not really be talking about

monetary policy in jackson hole. he will talk about growth and fiscal reform. do we expect anything out of that forum maybe more so from the fed rather than the ecb? >> the context of the event is economic growth. there's plenty that mr. drag fbi c draghi did talk about in that regard. policy has been effective at generating above-trend growth. even though the economy is doing better, it's taking longer to see in underlining pressures the market wants to steer how quickly and radically the ecb will recalibrate the policy stance to reflect the first and then how long before the second changes. so the market needs more direction from the ecb the data says the economy is still doing well, but the inflation rate is still low. the market is right to think for the moment that the ecb will be

cautious whifrnlts do y nks w . >> why do you think mario draghi is staying mum this week opt two speeches do you think the governing council at ecb is divided between the hawks and doves, or that there's a consensus on taping but they don't want to communicate it yet >> a few things at play. if you think about what happened after the sintra speech, the exchange rate increased markedly it's a potential constraint on the economy. i don't think it's a big issue for the economy short-term the other issue is mr. draghi front running the decisions of the governing council. you think back to jackson hole in august 2014 basically the speech there was an announcement of large-scale asset purchases. there were members of the governing council who were upset and frustrated by that just to highlight the proximity of september's policy meeting, the review of economic projections, it's likely they

keep mum and we'll hear a lot more on september 7th. >> he won't want to make the same mistake twice meantime, let's show you what's happening with the euro/dollar it did move higher on the back of the pmi data. it wasn't really mario draghi related. this was on the back of pmi numbers, flash numbers for august which with by in large better than expected. except for the services number for the eurozone that came in at 54.9 a touch below expectations when it comes to manufacturing those prints were larger than expected 57.4, and 55.8, also a touch higher than anticipated. i think there was a big surprise coming out of germany. we saw that economy and the eurozone economy at large stalling when it came to the last july pmi numbers. there was a sense of plateauing, but the german pmi numbers, the manufacturing print, that saw quite a bit of a jump that led to this slight rise in the

euro/dollar. what do you make of the pmi numbers? we thought there would be slowing, leveling off. are you surprised there is a pickup sooner rather than later? >> i'm not surprised you're right to highlight the point that some softer economic data recently has made people question whether the economy i losing traction, whether the currency is having an effect i think it's premature, but the fact that the pmi bounced, the numbers are elevated, it's a reiteration of where we are. as long as demand globally is solid which it is shgt the euro should be doing well the currency is a headwind, but it's the demand side that matters. for the moment, the news there looks good it's a comfort for the market that things are not tailing off. the ecb has communicated clearly

since the middle of the year, as long as the economy is growing above trend and the unemployment rate is falling, they feel confident that underlying inflation will pick up the conclusion is they will reset their policy stance, realign it more in line with positive fundamentals. you mentioned the export data. want to bring you the sub component for the pmi numbers. the export orders, highest since february 2011 in the month of august that's robust showing given we have seen that massive appreciation of the euro/dollar exchange rate. how do you explain that resilience do you not think the strong euro will be that much of a headache for the ecb after all? >> it's a problem for the ecb if the currency continues to appreciate we saw that in the account of july's policy meeting. they're concerned about overshooting particularly concerned for underlying goods inflation that area la been softer than the ec bshg was hoping f

the ec bshg was hopincb was hopl low. we need to separate the leads and lags in two forces there's a lag effect in pickup in demand, exports rising, word trade improving. plus the intraeuro area trade dynamic and the exchange effect this will lag down over time the exchange rate impacts different economies in different ways those more price sensitive next portses, a b in expo exports, and those like germany. >> how does this play out in the bond yield space come september or october when we get the more technical details about the tapering, the wind down of the asset purchases program. do you think investors have bought the rumor and will be selling the fact when it comes to the euro? >> i think that's a good analogy. if you think about what happened when the ecb was going into the

large-scale asset purchases, late 2014, early 2015, there was a big currentcy move that came ahead of that announcement we're probably seeing the reverse of that since the spring of this year the currency moved more to realign with fundamentals. the medium trend is still to be upwards. you have a large currency surplus in the area, so there's a medium term trend of appreciation but we've come such a long way in such a short period of time, you need the next step to push us further that will be september/october time the ecb signaling of a tapering. >> i guess it's still okay to buy on the dips then >> yeah, i think it is if you think about the drivers. >> ken, thank you very much for that and here's just a quick reminder of your other headlines

as we head to break. shares of wpp take a tumble after the ad giant cuts its full-year net sales forecast amid declining first half renews sir martin sorrell tells cnbc that the united states weighed on profits >> it's been a tough first half. quarter two was weaker than quarter one. the weakest for us was the u.s., which was pretty much the case across the industry. that's where the pressure has been amongst the heaviest. moving on up, k&s shares surge to the top of the stoxx 600 on reports activist hedge fund elliott is mulling a stake in the largest pot ash supplier. and nafta in doubt speaking at a rally in arizona president trump said he will probably end up terminating the north american free trade agreement.

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