Quo Vadis Monetary Policy since the Global Financial Crisis and What Needs to Be Done?

Abstract

Contemporary central banking is slowly evolving with an increasing number of political leaders demanding that the monetary authorities abandon a single-goal mandate of solely combating inflation. Since the global financial crisis, policymakers are considering a multi-goal commitment that would include not only concern with inflation as it became fashionable since the 1990s. Central banks should also give due consideration to the problem of unemployment and income distribution, as well as other concerns, in their interest-rate setting. The article looks at the Canadian experience, as case study, to show how inflation-targeting regimes merely pursue a distinct type of incomes policy with an implicit income distribution bias against labor income. The article also discusses alternative monetary policy frameworks with precise interest rate-operating rules whose focus would be on preserving an income distribution objective rather than an inflation target.

JEL Codes: E52, E58, E63, E64