The New Monetary Policy Revolution: Advice and Dissent

Philip Turner

No 60, National Institute of Economic and Social Research (NIESR) Occasional Papers from National Institute of Economic and Social Research

Abstract: Central banks have undertaken a revolution in monetary policy. They reluctantly abandoned conventional wisdom designed to keep them out of political trouble. This paper looks at this revolution through the lens of the divergent perspectives of the IMF and the BIS. The Jeremiahs predicted this revolution would fail to reduce unemployment and lead only to financial ruin. The Jeremiahs were proved wrong on both counts. Radical whatever-it-takes monetary expansion rescued a depressed world economy. Regulatory reform kept financial risks in check. Because central banks now have two distinct monetary policy instruments - their balance sheet as well as the policy interest rate - monetary policy may have financial stability as an objective in addition to its traditional macroeconomic one. The questions for 2021 and beyond are two. The first is: if the mix of large balance sheets, a sudden jump in government debt and yet-to-be-determined regulatory failures creates new financial stability or macroeconomic risks, what should central banks do? The second is: will governments let them?

Keywords: Monetary policy; financial stability; financial crisis; fiscal dominance; QE; lender of last resort; macroprudential policy; central banks; Fed; ECB; Bank of England; Bank of Japan; Basel Committee; BIS; CGFS; FSB; IEO; IMF (search for similar items in EconPapers)
JEL-codes: E52 E58 G18 (search for similar items in EconPapers)
Date: 2021-02
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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