On 19 June, Jordi Galí, a full professor of Fundamentals of Economic Analysis at the UPF Department of Economics and Business, a senior researcher at the Centre for Research in International Economics (CREI) and a research professor at the Barcelona School of Economics (BSE), received the BBVA Foundation Frontiers of Knowledge 2025 award in the field of Economics, Finance and Management at a ceremony held at the Euskalduna Palace in Bilbao.

Together with Olivier Blanchard (Paris School of Economics and MIT) and Michael Woodford (Columbia University), Jordi Galí has been recognized for establishing the foundations of the New Keynesian paradigm and designing the rules and instruments of fiscal and monetary policy most used in the last fifteen years. Professor Galí has focused on two lines of work, which are set out in the book Monetary Policy, Inflation and the Business Cycle: An Introduction to the New Keynesian Framework and its Applications  (2nd ed.) (Princeton University Press).

On the one hand, he has analysed an optimal monetary policy, which demonstrates the virtues of the monetary authority following a rule that can be anticipated by the economic agents; and on the other, he has made an empirical estimation of monetary policy rules that describe how different central banks carry out and implement monetary policy and the changes that this policy undergoes over time.

The BBVA Frontiers of Knowledge award has recognized your contributions in laying the foundations of the New Keynesian paradigm. How do these measures influence the functioning of the economy and what is the purpose of their application?

The goal of this research programme is to better understand the impact of alternative monetary and fiscal policy rules, using the so-called New Keynesian model, which is a model that combines traditional Keynesian elements, such as monopolistic competition and price and wage rigidities, with microfoundations based on the optimal behaviour of companies and individual consumers as a “laboratory”. The ultimate goal is to ascertain which economic policy rules are most beneficial to citizens.

All economic decisions involving an initial investment require forming expectations concerning the future benefits of this possible investment

The New Keynesian economy, compared to traditional models, takes the role of expectations into account. In the current context of uncertainty the world economy has entered, is it difficult to talk about expectations and to think forward?

All economic decisions involving an initial investment require forming expectations concerning the future benefits of this possible investment. The erratic policies we have seen recently make these predictions more uncertain, and can therefore lead to a degree of paralysis for new projects, whether the construction of a new production plant or leaving a stable job to do a master’s degree, to give two tangible examples.

Can this uncertainty add complications when calculating an optimal monetary policy? What are the main elements taken into account in this analysis, and to what extent does uncertainty increase the difficulty of the monetary authority to be able to foresee its future policies?

The uncertainty of the environment requires central banks to be more transparent regarding their objectives and strategies to achieve them, in order insofar as possible to minimize this uncertainty in the fields that are the responsibility of the central banks and especially in relation to the stability of price levels.

The European Central Bank’s monetary policy cycle has sought to address a series of shocks that have occurred in recent years, such as the pandemic, the Russia-Ukraine war, the energy crisis or the price crisis, etc. Now, can the tariff war between the US and Europe interfere with the succession of interest rate reductions initiated a few months ago by the monetary authority?

 A scenario that could lead to reversing these rate reductions would be a significant increase in inflation in the eurozone. That could be a result of a generalized trade war with an impact on production costs and the prices of end goods and services, but also of an increase in the price of energy due to the conflict with Iran.

Does Trump’s aggressive tariff policy implemented to regulate the economy make sense?

It can be rationalized as an instrument of pressure by the US to achieve policies that favour it, both in the field of tariffs and in other areas that have nothing to do with it. This can only be afforded by a large, rich country, with the effective capacity to harm others. In the process, however, they are harming themselves, as American citizens will have to pay more for imported products. And on the rebound, they are dismantling the multilateral cooperation system that has been built with great effort over the last eighty years.

Bureaucracy, the over-regulation of the labour market and a lack of venture capital for new companies with high growth potential are our main handicaps

The Draghi report presented in September 2024 included a strategy and a series of measures to halt the economic decline of the European Union and boost its growth. Who should spearhead this revitalization, and what role should public authorities play?

Ultimately, it is the private sector that must generate the increase in productivity required to enable increasing per capita income and not fall behind the US. Governments can contribute in two ways: by not throwing spanners in the works and by facilitating European integration, especially in the capital market. Bureaucracy, the over-regulation of the labour market and a lack of venture capital for new companies with high growth potential are our main handicaps.

In Spain, it seems that the macroeconomic and expansionary growth figures are positive, and The Economist chose the Spanish economy as the best in the OECD in 2024. How should we interpret this distinction?

With a smile. The figures highlighted reflect high growth in absolute terms, due to a very strong increase in employment, favoured by a highly permissive immigration policy. In terms of per capita GDP growth or productivity, things have been very different.

Is it legitimate to put the absolute growth figures of a country’s economy, such as GDP in absolute terms, ahead of GDP per capita or productivity? Is it indicative a country’s priorities and the economic model to which it is committed?

To my mind, this model responds to two forces. First, pressure by the business lobby, which benefits from lower labour costs. And second, the short-termism of our politicians, who see absolute growth as a source of immediate income, without internalizing the medium-term consequences in terms of pressure on resources: housing, education, energy, health and, even pensions. It has the obvious features of a pyramid scheme.

I often travel for work and around me on the plane I see only people in shorts and t-shirts wanting to have fun

Catalonia is at the bottom of the class at the international level in terms of average GDP growth per capita over the last twenty years, despite having positive figures in terms of growth in GDP or employment. Does this mean we’re not on the right track?

We are not on the right track and neither is there any sign of a change of direction, beyond our political and business leaders’ rhetoric. The agreement to expand the airport is the clearest example of this. I often travel for work and around me on the plane I see only people in shorts and t-shirts wanting to have fun. Also on intercontinental flights, by the way. Does anyone really believe that the supposed additional intercontinental flights that the new runway will allow will be suddenly filled with senior executives, engineers and other people travelling “for work”? What’s to stop them from taking the flights we already have now, intercontinental or not? Even business class is packed with tourists!

Precisely the controversy over the expansion of Barcelona airport has led to a debate on the model of country we want. Is it difficult to find a balance between a commitment to industry, technology and research, with skilled employment and greater added value, and a model based on tourism, massive growth and less skilled workers?

Quite frankly, I don’t understand why we should seek such an equilibrium. We should try to maximize the former and minimize the latter. Just the essentials.

Is the unique financing model proposed by the PSOE and ERC heading in the right direction to mop up the chronic fiscal deficit suffered by Catalonia? What essential elements should this model include for it to be positive for the country’s economy?

As it stands today, without a precise specification of the principle of ordinality and its binding nature, it does not even guarantee that it will reduce the tax deficit. On the other hand, what does it matter which administration ends up collecting taxes if our taxation continues to asphyxiate and the fiscal deficit remains? But the political reality is what it is: as long as the so-called “Catalan partners” do not propose a credible alternative to indefinite support for the current Government, they will have no real negotiating power with Madrid. The agreement on Rodalies (Catalan surburban train network) could not be more illustrative in this regard. One of the obvious goals of the transfer was to be able to decide the operator freely. This will now be impossible, as the company that will manage Rodalies will be controlled by Renfe.