Central Bankers’ Shifting Goalposts
BRUSSELS – The theme of this year’s meeting of the world’s central bankers in Jackson Hole, Wyoming, had little to do with monetary policy. “Fostering a Dynamic Global Economy” is, of course, an important topic. But it is telling that the European Central Bank chose, for its own annual gathering, a similar “non-monetary” topic (“Investment and Growth in Advanced Countries”).
There is nothing wrong with central bankers considering challenges in areas like growth, trade, and investment. But central banks were made independent precisely because it was understood that they would be held accountable for achieving their own objective of maintaining price stability, regardless of the economy’s underlying growth rate. So why is it that central bankers would rather look at external issues than focus on their own area of responsibility?
The answer, it seems, is that they cannot quite explain their current approach.
Conditions today are very favorable for monetary policymaking, particularly for the ECB – as a brief look at history makes clear. Since the creation of the Economic and Monetary Union (EMU) in January 1999, the ECB has been solely responsible for determining the EMU’s monetary policy. (Although national currencies remained in circulation until 2002, exchange rates were “irrevocably” fixed from 1999.)
The ECB’s job was hard from the beginning. After all, when the euro was born, global financial markets were in turmoil, owing to the Asian crisis of 1997 and the Russian default of 1998. The VIX index, which measures stock-market volatility, had hit 44% in August 1998, and during the euro’s first few years, it hovered around 25-30%, compared to around 12% today. While unemployment in the eurozone was declining, the rate was close to 10%, and it remained higher than today’s level, 9.3%, for all of 1999.
…click on the above link to read the rest of the article…
