Abstract:
Central banks are experiencing the apocryphal curse that they are living through interesting times. In the last twenty years, they have faced the global financial crisis of 2007-2009, the Covid pandemic of 2020, and a surge in inflation in 2022-2023. This paper examines the challenges that central banks face in the wake of these crises. Here we focus on how central bank governance, monetary policy and financial stability policy at central banks has evolved in recent years. We start by discussing the core economics of central banking, and then discuss how this analysis impacts the tools and design of monetary policy. Then we discuss challenges created by the low interest rates in the aftermath of the global financial crisis and the Covid pandemic, and the inflation surge in 2021-22. Finally, we conclude with a summary of the lessons we have learned for central bank strategies and tactics.
