Central banks into the breach : from triumph to crisis and the road ahead

"The events of the past decade and a half are the story of two mistakes, one triumph, with the real possibility either of another mistake. Prior to the global financial crisis of 2007-9 many central bankers were dismissive about the need to worry about financial instability. The connection between finance and the real economy was severed. The decades since the 1980s saw several financial crises around the world with little lasting impact on the global economy. The second mistake was a failure to adequately appreciate how inter-connected the world's financial system had become. The fact that the crisis originated in the advanced world only increased the effect it had on the global economy. The triumph was the widespread acceptance by central banks, governments, and the public, that price stability is a desirable objective. Whether the desire to pursue low and stable inflation is cause or consequence of economic performance during the two decades that preceded the crisis remains hotly debated. There is also the prospect of another shock to come given the strategies adopted by central banks in the advanced economies. Whether it will be a positive one, or presage another major crisis, remains to be seen. The latter is more likely since the outlook at the end of 2016 is clouded by two sets of opposing forces. On the domestic front key advanced economies face a difficult exit from ultra-loose monetary policies. At the international tensions between central banks and the governments they are directly accountable to have heightened considerably. The book tells this story and provides some ideas about where to go from here in the area of central banking."