Post-crisis Monetary Policy Reform: Learning the Hard Way

Abstract

The current inflation-targeting regime did not manage to stabilise inflation at the official target in the first decade since its establishment in 2001, nor was it able to contain the large macroeconomic and financial imbalances that were building up from the middle of the decade, culminating in the catastrophic financial crisis in the autumn of 2008. The crisis triggered a major revision of the monetary policy framework and its governance and decision-making structure. These changes are described by Thórarinn G. Pétursson, the chief economist of the Central Bank of Iceland. His findings suggest that these reforms have increased the transparency and credibility of monetary policy in Iceland with improved inflation performance and greater overall nominal and real stability compared to before. Chief Economist of the Central Bank of Iceland and Director of Economics and Monetary Policy Department. This paper was prepared for the conference “The 2008 Global Financial Crisis in Retrospect”, held in Reykjavík Iceland 30-31 August 2018.