In its new report “The Future of Monetary Policy”, the Credit Suisse Research Institute looks at the transformative changes central banks in advanced economies have undergone since 2008. The report concludes that the key issue for decision-makers globally remains to consider which fundamental direction monetary policy ought to take next, assessing two alternative scenarios that may evolve: a return to a pre-crisis “normal”, or an extension or amplification of recent policy trends, leading to a further blurring of boundaries between monetary, regulatory and fiscal mandates.
In response to the extraordinarily challenging environment in the immediate aftermath of the global financial crisis of 2008, central banks in leading advanced economies have seen their mandates broadened from fairly narrowly defined macroeconomic targets, such as price stability and employment, to include financial stability.
Moreover, to achieve their targets, central banks have adopted an ever-broader range of previously untested “unconventional” policy tools, including quantitative easing and negative interest rates. As a result, central banks have become prominent providers of assets and liquidity for sovereigns, financial institutions and shadow banks, reflected also in a manifold expansion of their balance sheets.
Oliver Adler, Head of Economic Research International Wealth Management, Credit Suisse: “Since 2008, central banks have changed their policy-making in dramatic ways, initially to prevent a major destabilization of the financial system in the immediate aftermath of the financial crisis, and thereafter to offset evolving deflation risks. The coming years will be decisive in relation to the future direction of central bank policy, depending on both economic and political developments. Even if the influencing factors are difficult to predict, we believe that the discussion of the future of monetary policy needs to be reinforced.”