A selection of papers on the position of central banks : Essay

Soós, Károly Attila (2023) A selection of papers on the position of central banks : Essay. ECONOMY AND FINANCE: ENGLISH-LANGUAGE EDITION OF GAZDASÁG ÉS PÉNZÜGY, 10 (3). pp. 278-289. ISSN 2415-9379

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Abstract

The central banks of the industrialised world faced an unusual and difficult challenge in 2022-2023 when inflation, public debt in several countries and the exposure of banking systems to private debtors rocketed all at once. Thus, interest rates needed to be raised (to curb inflation) and reduced the same time (to stop the growth of public debt, usually termed fiscal dominance), and/or save banks from losses (which means financial dominance). The question arises whether central banks must accept fiscal and/or financial dominance? And, really, how could this happen? Can one blame central banks for the processes leading up to it and if they can, in what sense? What has been misunderstood about the relationship of unemployment and the rate of inflation? Has quantitative easing (QE) by a number of central banks been the right response since interest rate reduction as a means to boost the economy failed? Is it possible that forward guidance may lead to better results? Or else, should the operating modes of central banks be changed temporarily? Those seem to be the most interesting issues dealt with by experts of the IMF and former and current central bank governors and experts in the 2023 March issue of Finance & Development. Final answers to the questions cannot be expected in the near future, but readers can find some worthy opinions here.

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