The Reserve Bank of New Zealand has a special place for central bank watchers. It pioneered the introduction of inflation targeting in the 1990s, and was for many the first truly independent central bank of the modern era, with a target of 0-2% inflation and the full freedom of independent…
Digital currencies – sometimes called cryptocurrencies – are suddenly much in the news. What is behind this, and what is the future for this new form of finance?
So far in this series of articles, we have considered the immediate challenges in front of central banks, which in a nutshell revolve around the normalisation of monetary policy and the re‑establishment of a more orthodox relationship with markets. In this final article we consider the longer term outlook, once…
With the US Federal Reserve widely expected to start the process of shrinking its balance sheet in the next few months – a process that has been christened Quantitative Tightening or QT – we consider the consequences for economies and markets of the approaching normalisation.
Central banks have always said that the unconventional monetary policy measures they have introduced in recent years are temporary, and they have been keen to restore policy to “normality” when the time is right. As that time approaches, the urgent question is what the great unwind will entail and how they will carry it out.
For much of the last 8 years, there has been an active debate on what central banks were doing to combat the threat of a second Great Recession. But as the period of extreme monetary policy draws to a close, the discussion is beginning to look forward, and to what the future policy framework for central banking should be.
Should central banks shrink their swollen balance sheets? And, if they do, how should it be done and how far should it go? In the two months since we last addressed this subject the debate has developed further.
For many years it was assumed that official interest rates, as set by central banks, could not go below zero. In recent years this rule – the “Zero Lower Bound” constraint, as it was known – has been decisively broken. How does monetary policy work in the brave new world of negative official interest rates, and what are the longer term implications?