Central Banking Post Crises

National Bureau of Economic Research · 2024-03-01 · 10 citations

The world economy has experienced the largest financial crisis in generations, a global pandemic, and a resurgence in inflation during the first quarter of the 21st century, yielding important insights for central banking.Price stability has important benefits and is the responsibility of a central bank.Achieving price stability in a complex and uncertain environment involves a credible commitment to a nominal anchor with a strong response to inflation and pre-emptive leaning against an overheating economy.Associated challenges imply that central bank communication and transparency are key elements of monetary policy strategies and tactics.Crises have emphasized the role of central banks in promoting financial stability, as financial stability is key to achieving price and economic stability, but this role increases risks to independence.Goals for central banks other than price and economic stability, complemented by financial stability, can make it more difficult for them to stabilize both inflation and economic activity.

Central Banking Post Crises

Finance and Economics Discussion Series · 2024

• Financial system
• Business

The world economy has experienced the largest financial crisis in generations, a global pandemic, and a resurgence in inflation during the first quarter of the 21st century, yielding important insights for central banking. Price stability has important benefits and is the responsibility of a central bank. Achieving price stability in a complex and uncertain environment involves a credible commitment to a nominal anchor with a strong response to inflation and pre-emptive leaning against an overheating economy. Associated challenges imply that central bank communication and transparency are key elements of monetary policy strategies and tactics. Crises have emphasized the role of central banks in promoting financial stability, as financial stability is key to achieving price and economic stability, but this role increases risks to independence. Goals for central banks other than price and economic stability, complemented by financial stability, can make it more difficult for them to stabilize both inflation and economic activity.

Monnaie, banque et marchés financiers

HAL (Le Centre pour la Communication Scientifique Directe) · 2020-01-01 · 5 citations

Manuel destiné aux étudiants des universités (Licence et M1) et des Ecoles de commerce - 7ème édition

The Economics of Money, Banking, and Financial Markets -11/E

2020 · 3 citations

• Economics
• Business
• Financial system

Modern Central Banking

Oxford University Press eBooks · 2019-11-06 · 3 citations

Abstract This chapter examines how central banking has evolved in recent decades by looking at two main areas of central bank activities: monetary policy and financial stability policy. It starts by describing a set of nine basic scientific principles derived from theory and empirical evidence that now guide thinking at almost all central banks, which is referred to as the science of central banking. Then the essay discusses how the science of monetary policy provides a framework for understanding central bank governance and how modern central banks conduct monetary and financial stability policies. Central banking has entered a brave new world in which challenges have become greater and the conduct of policy has become more complex.

Prospects for Inflation in a High Pressure Economy: Is the Phillips Curve Dead or is It Just Hibernating?

National Bureau of Economic Research · 2019-05-01 · 43 citations

This paper reviews a substantial range of empirical evidence on whether the Phillips curve is dead, i.e. that its slope has flattened to zero.National data going back to the 1950s and 60s yield strong evidence of negative slopes and significant nonlinearity in those slopes, with slopes much steeper in tight labor markets than in easy labor markets.This evidence of both slope and nonlinearity weakens dramatically based on macro data since the 1980s for the price Phillips curve, but not the wage Phillips curve.However, the endogeneity of monetary policy and the lack of variation of the unemployment gap, which has few episodes of being substantially below zero in tis sample period, makes the price Phillips curve estimates from this period less reliable.At the same time, state level and MSA level data since the 1980s yield significant evidence of both negative slope and nonlinearity in the Phillips curve.The difference between national and city/state results in recent decades can be explained by the success that monetary policy has had in quelling inflation and anchoring inflation expectations since the 1980s.We also review the experience of the 1960s, the last time inflation expectations became unanchored, and observe both parallels and differences with today.Our analysis suggests that reports of the death of the Phillips curve may be greatly exaggerated.

Prospects for inflation in a high pressure economy: Is the Phillips curve dead or is it just hibernating?

Research in Economics · 2019-11-27 · 123 citations

Improving the use of discretion in monetary policy

International Finance · 2018-12-01 · 17 citations

Abstract This paper argues that the rules versus discretion debate has been miscast because a central bank does not have to choose only between adopting a policy rule versus pure discretion, both of which have serious shortcomings. Rather, it can choose a constrained discretionary regime that has rule‐like attributes. To make monetary policy discretion more rule‐like, it can be improved by (1) adopting a nominal anchor such as an inflation target, a monetary‐policy strategy that has proved to be very successful in recent years, and (2) communication of a monetary‐policy reaction process, especially through data‐based forward guidance, in which the monetary‐policy authorities describe how the future policy path will change as economic circumstances change.

Inflation Targeting

Princeton University Press eBooks · 2018-06-05 · 46 citations

Making Discretion in Monetary Policy More Rule-Like

National Bureau of Economic Research · 2017-12-01 · 8 citations

This paper argues that the rules versus discretion debate has been miscast because a central bank does not have to choose only between adopting a policy rule versus pure discretion, both of which have serious shortcomings. Rather it can choose a constrained discretionary regime that has rulelike attributes. Monetary policy discretion can be made more rule-like, by 1) adopting a nominal anchor such as an inflation target, and 2) communication of a monetary policy reaction process, especially through data-based forward guidance, in which the monetary policy authorities describe how the future policy path will change as economic circumstances change.