The Group of Thirty (G30) today published Central Banking and Monetary Policy: Principles and the Way Forward from the G30 Working Group on Monetary Policy.
WASHINGTON, Nov. 30, 2023 /PRNewswire-PRWeb/ -- The Group of Thirty (G30) today published Central Banking and Monetary Policy: Principles and the Way Forward. A product of the G30 Working Group on Monetary Policy - chaired by G30 members Jacob Frenkel, Raghuram Rajan, and Axel Weber, the report dissects the causes of the inflationary spike across many economies and the weaknesses in central banking models and approaches that contributed to a delayed response to the price hikes. The authors, including sixteen former or current central bankers and ministers of finance, warn inflation is less predictable today than in the past. They find that central bank frameworks, re-designed for a low inflation world and coupled with a data-driven approach to setting policy, slowed reactions to price rises as they developed. At the same time, existing policy commitments limited room to maneuver, resulting in some advanced economy central banks being behind the curve in their response to inflation. Emerging economies, many with the recent memory of higher inflation, reacted much more decisively.
The study calls for a return to a focus on central bank core goals, backed by maintaining central bank operational independence and a humble approach to central banking.
Jacob Frenkel, Co-Chair of the G30 Working Group on Monetary Policy, Former Governor of the Bank of Israel, and Former Chairman of JPMorgan Chase International stated: "We call for a humble approach to central banking. In practice, this requires central banks to be realistic about their ability to forecast precisely macroeconomic outcomes; they should avoid being hostage to specific complex models." Frenkel added: "As someone who has battled inflation in a small open trading economy, I valued, and this report underlines, the importance of having central bank's credibility, clarity, and operational independence. Central banks should focus on achieving and maintaining price stability in the medium term, on securing financial stability, on anchoring expectations, and on preserving policy room for maneuver."
Raghuram Ragan, Co-Chair of the G30 Working Group on Monetary Policy, Distinguished Service Professor of Finance at the Chicago Booth School of Business, and Former Governor of the Reserve Bank of India added: "The humble approach to central banking also means central banks should avoid prolonged accommodation, as the intended and unintended effects are hard to predict, and the longer they are in place, the higher the likelihood of poor outcomes." Rajan added: "Central banks must always be ready to do whatever it takes to avert a crisis. But they must also articulate their exit strategy. We do not want crisis-driven policy actions to harden into an unhelpful new normal."
Axel Weber, Co-Chair of the G30 Working Group on Monetary Policy, President of the Center for Financial Studies at Goethe University Frankfurt, and Former President of the Deutsche Bundesbank stated: "Central banks should rely more on simple and transparent rules. Pursuing discretionary measures repeatedly tends to undermine the ability of central banks to act consistently in the future." Weber stressed: "Using a humbler approach requires that central banks primarily focus on maintaining the inflation anchor. Since it is not possible in a world with complex and interconnected shocks to fine-tune inflation or to both consistently achieve the inflation target and support other policy objectives, central banks should primarily focus on achieving the inflation target over the medium term. This is in essence the fundamental task of central banks and central bankers."
Markus Brunnermeier, Project Director of the G30 Working Group on Monetary Policy and Edward S. Sanford Professor at Princeton University stated: "Resilience should be part of any central bank strategy. It is important to maintain future policy space to bounce back after shocks. With high public debt levels, the interaction between monetary and fiscal policy will become more fraught, as an interest rate increase digs a bigger hole in public finances. High private debt levels and leverage might lead to "financial dominance", limiting central banks' policy space to fight inflation out of fear of triggering a financial crisis. Hence, central bank independence, a well-capitalized central bank balance sheet - measured in risk, a re-evaluation of interest payments on reserves, and a control of crises narrative are paramount."
The G30 Working Group on Monetary Policy included sixteen members: Agustin Carstens (observer), Domingo Cavallo,William C. Dudley, Mohamed A. El-Erian, Roger Ferguson, Arminio Fraga, Gerd Haeusler, Mervyn King, Klaas Knot (observer), Jacques de Larosiere, Guillermo Ortiz, Tharman Shanmugaratnam, Masaaki Shirakawa, Jean-Claude Trichet, Kevin Warsh, and Yi Gang. We extend our gratitude to the Working Group members for their support, input, and dedication throughout the project.
The G30 thanks Project Director Markus Brunnermeier for his contributions to the report and his engagement on the endeavor.
To receive a copy of Central Banking and Monetary Policy: Principles and the Way Forward, contact G30 Press Officer Melissa Golding at +1 571-236-2820 or [email protected].
On November 30, 2023, at 8:00am EST, the G30 hosted a live webinar launch of the report with Jacob Frenkel, Raghuram Rajan, Axel Weber, and Markus Brunnermeier. Following opening remarks on specific topics raised in the report, the speakers answered participant questions. To access the webinar recording, visit www.group30.org.
The Group of Thirty is an independent global body comprised of economic and financial leaders from the public and private sectors and academia. It aims to deepen understanding of global economic and financial issues, to explore the international repercussions of decisions taken in the public and private sectors, and to examine the choices available to policymakers and market practitioners. The Group was established in 1978. The Chairman of the Board of Trustees is Tharman Shanmugaratnam; Mark Carney is Chair of the Group. More information and membership bios are available at www.group30.org.
Media Contact
Stuart Mackintosh, Group of Thirty, 1 2023312472, [email protected], www.group30.org
SOURCE Group of Thirty
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