8 thoughts on “The end of the zombies: Inflation targeting

  1. “The idea of central banks as independent authorities needs to be abandoned in favour of coordination of monetary and fiscal policy..”

    Careful here. Institutions have to work with the people you’ve got, not the Solons you’d like. Look at central bankers today, what do you see? A bunch of conservative middle-aged professionals, with suboptimal policy views, kept honest by institutional culture, high and secure pay, and collective, rule-governed decision-making. I may be wrong, but I get the impression from their response to the pandemic that they have learned something from their mistakes in the GFC. Look at democratically elected leaders, and you often see men – Abbott, Johnson, Trump – you would not trust to walk your dog. Anybody proposing to increase the power of elected governments over monetary policy has to reflect on the history of President Trump’s relations with the Fed: he did after all nominate Judy Shelton to a vacant governorship, an outright whackjob.

    If what JQ is proposing is to change the policy régime to monetary-fiscal coordination *while preserving the operational and regulatory independence* of central banks, I’m all ears. But easier said than done. One possible inspiration is Gordon Brown’s (IIRC) reform of the Bank of England: The Chancellor of the Exchequer can issue orders to the Bank – in writing and publicly. No deniable and ambiguous phone calls.

  2. Yes James Wimberley is on the right track with his reference to the Bank of England. My research of the monetary policy responses to the GFC compared to those for the pandemic lockdowns, highlights the new monetary policy wisdom in London. The performance of the Bank of England has been laudable in 2020. Compare this to the total hash they made of handling the Great Recession and you get closer to monetary policy amd you can see the mistakes that were made immediately after the GFC.

  3. @James The UK model you mention was exactly what we had before the move to full central bank independence. Also,Treasury officials are fairly similar to central bankers, so I don’t think putting them back in the same room will have drastic effects.

  4. Mark Carney is culturally very similar to the people who worked for him. Boris Johnson and Dominic Cummings are not in the least like Treasury officials. The risks from politicisation of monetary policy are real, and deserve much mor

  5. Institutions have to work with the people you’ve got, not the Solons you’d like. Look at central bankers today, what do you see? A bunch of conservative middle-aged professionals, with suboptimal policy views, kept honest by institutional culture, high and secure pay, and collective, rule-governed decision-making.

    But is that something you can rely on? Why are central bankers the kind of people that they are? Is it only because that’s the kind of people elected politicians nominate to be central bankers? Can you rely on elected politicians to continue nominating the same kinds of people to be central bankers?–

    Anybody proposing to increase the power of elected governments over monetary policy has to reflect on the history of President Trump’s relations with the Fed: he did after all nominate Judy Shelton to a vacant governorship, an outright whackjob.

    –no. No, you cannot.

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