Reviewing and reformulating monetary policy for the 21st century
Keywords:
monetary policy, central banks, inequality, climate change, fiscal policyAbstract
In a context characterized by two consecutive severe economic crises - the Great Recession and the crisis derived from Covid-19 - and the exhaustion of conventional monetary policy with nominal interest rates at their effective lower bound, it is necessary to reformulate the actions of central banks through new instruments and multidimensional objectives in order to face the challenges facing our societies in the 21st century. It is against this background that this paper aims to assess how monetary policy has evolved in recent years and how new monetary policy designs could contribute to alleviating some of these challenges, such as high inequality and climate change. The paper distinguishes the "old challenges" from the "new challenges" facing monetary policy. The paper also addresses the future fit of monetary policy with the new expansionary fiscal policy implemented in all developed economies in the wake of the economic crisis caused by the COVID-19 pandemic.
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