Adding rooms onto a house we love: Central banking after the Global Financial Crisis

Abstract

This article examines the extent to which central bankers have been willing and able to rethink their beliefs about monetary policy in the wake of the Global Financial Crisis. We show that despite the upheaval, the core pre-crisis monetary policy paradigm remains relatively intact: central bankers believe that they should primarily pursue price stability through targeting low inflation in a transparent manner, and that they need operational independence to achieve this goal. In a bid to address post-crisis conditions and maintain their credibility, however, central bankers have also layered new elements onto the old core. We document both the resilience of pre-crisis beliefs and the process of layering using computer-assisted text analysis and qualitative analysis of 13,586 speeches given between 1997 and 2017 by central bankers from around the world.

National culture and central bank transparency: Cross-country evidence

“…proper role. Along the same lines, McPhilemy and Moschella (2019) highlight the arguments of Moschella and Pinto (2019) and Johnson et al (2019), mentioning that: "central banks are sensitive to the need to build and maintain their reputation with the public, and they will shape their behaviour accordingly" (p. 490). Furthermore, as discussed in Högenauer and Howarth (2019), central banks play the role of agents in the typical principal-agent relationship.…”

“…In a more general context, our work also relates to another strand of the literature that deals with various aspects of central banking, like the role of central bank independence in a deflationary environment(Tokic, 2018), the communication style of central banks(Moschella and Pinto, 2019), the role of professional structures on the economic ideas and subsequent policy positions of central banks(Ban and Patenaude, 2019), the parliamentary scrutiny of central banks(Högenauer and Howarth, 2019), the monetary policy related beliefs of central banks in the wake of the global crisis(Johnson et al, 2019), the leadership style of central bankers(Khademian, 2010), and the role of central banks as models for reform while transferring governmental powers to other technocrat -guardians(Roberts, 2010).3 Existing work tends to be rather descriptive. For example,Lentner et al (2017) discuss the social responsibility in the operation of central banks, and within this context they also refer to transparency and the ethical responsibility of the central banks Claveau et al (2019).…”

Central Banks

“…Lending directly to citizens and firms, in contrast, is not usually an explicit part of the central bank toolbox. The post-crisis period has made clear that existing central bank mandates provide legal options for central banks to influence the real economy, but central bankers remain very reluctant to do so (Johnson, Arel-Bundock, & Portniaguine, 2019). By limiting central bank operation to the purchase of safe assets and lending to banks, the legislature codifies the hybridity of the monetary system.…”

The Routledge Handbook of Critical Finance Studies

“…Central bankers often seek to subsume their new unconventional monetary tools under the pre-crisis justifications of their independence (Van't Klooster & Fontan, 2019). By emphasizing continuity, they keep decisions on new monetary instruments in the domain of their expert judgments, and thereby outside the domain of democratic politics (Hay, 2007;Johnson et al, 2019). These strategies were successful to the extent that, until today, no major central bank has suffered a significant loss of independence.…”