Lets talk about how important it is to frequently #Review #CentralBank #MonetaryPolicy #Frameworks...
I will set things off by pointing out that the various facets of #BusinessCycles (early, mid, late / boom & busts) consistently keep reminding us that what goes up, must come down. We might find ourselves in a prolonged #expansion, but eventually it decelerates into a #recession
As part of #Macroeconomic management (counter cyclical), a #CentralBank's objective (through its #MonetaryPolicy) is to maintain #PriceStability & #FinancialStability & in other cases, to promote #FullEmployment. It does this hand in hand with #FiscalPolicy...
Allow me to focus exclusively on #MonetaryPolicy in this thread. In 2019, the US #FederalReserve / #FED announced that it will conduct, during that year, a review of their monetary policy #Framework under a banner they termed #FEDlistens...
If you have had your finger on the pulse, you will have noted that yesterday 23rd Jan 2020, the #ECB announced that they will, in 2020 conduct a #Review of their #MonetaryPolicy #Framework / #Strategy...
Indeed, while I have, at this juncture, spoken only of the #FED and #ECB and their #review exercises of their #MonetaryPolicy #Strategies / #Frameworks, it has to be said that the #BankofCanada is perhaps a #Pioneer of this #BestPractice in #CentralBanking...
But, why is there a need for a #CentralBank to frequently review its #Policy #Frameworks and #Strategies? Simply put, it pays (excuse the pun) for a Central Bank to internalise changes that are happening around its normal policy cycle so as to fashion its #tools accordingly...
To understand this clearly, you might have to recall the happenings post the 2007/08 #FinancialCrisis & what recourse was taken by #CentralBanks to try & prop up their #Economies out of recessions & broad based #Economic malaise...
Following the #FinancialCrisis of 07/08, #CentralBanks in the developed world introduced & implemented what are now known as #UnconventionalMonetaryPolicies / #UMPs. The UMPs encompassed #ForwardGuidance, #QuantitativeEasing & #NegativeInterestRatePolicies...
Rich #Debate among #Economists & #CentralBankers continues on the efficacy & usefulness of #UMPs. There is hardly consensus. What remains obvious is this: #Inflation appears to be subdued (below target) while #wages & #employment rise...hmm! Seems Counter #PhillipsCurve, no?
As the #GlobalEconomy faces headwinds in 2020, #CentralBanks appear to be signalling a "lower for longer" / accomodative stance what with most of the developed world's key #Policy rates close to or at their defined #LowerBound...
The question then becomes, what will #CentralBanks do in the next #DownTurn, in the next #Recession? Will they continue to throw #Conventional policy tools at the problem or will they reach out for #UMP? In fact, will the so called UMP be enough?
I have tried to paint a succinct picture of the nature of #CentralBanking, describing main functions while highlighting some "modern" #tools recently employed towards achieving its mandate. I have also tried to detail why the tools need review in light of on ground developments..
In closing, a #CentralBank can perhaps boast like #LiamNeeson that "what I do have are a very particular set of #TOOLS. #TOOLS I have acquired over a very long career..." While this might be true, it would be foolhardy not to revisit the toolbox often & keep tools sharp.
@threadreaderapp kindly unroll...
