Author(s): G30 Working Group on Monetary Policy
Year: 2023
Pages: 42
ISBN: 1-56708-188-6

This paper 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 found 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.
 
The report 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. Three core goals of central banks include price stability, financial stability, and macroeconomic stability. Having a humble approach requires central banks to be realistic about their ability to forecast macroeconomic outcomes and to design policy with the aim of preserving future policy space and an inflation anchor.
 
This paper also examines emerging market economies, finding those central banks, many with the recent memory of higher inflation, reacted much more decisively.
 

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