Necessity as the mother of invention: Monetary policy after the crisis

Abstract

We examine recent changes in monetary policy due to the financial crisis and ask whether they are likely to be temporary or permanent. We present evidence from two original surveys - one of central bank governors, the other of academic specialists. We find that central banks in crisis countries are more likely to have resorted to new policies, to have had discussions about changing mandates, and to have communicated more extensively. But thinking has changed more broadly. For instance, many central banks in non-crisis countries also report implementing macro-prudential measures. Looking forward, we expect central banks to have broader mandates, use macro-prudential tools more widely, and communicate more actively than before the crisis. While there is no consensus yet about the usefulness of unconventional monetary policies, we expect most of them will remain in central banks' toolkits, as governors who gain experience with a particular tool are more likely to assess that tool positively. Finally, the relationship between central banks and their governments might well have changed, with central banks " crossing the line" into the political realm more often than in the past.