Review of Political Economy

What should central banks do?

WHAT SHOULD CENTRAL BANKS DO?

A joint symposium between the Review of Political Economy and Economia e Sociedade.

Guest editors: Carolina Baltar, Alex Wilhans Antonio Palludeto, Louis-Philippe Rochon, and

Sergio Rossi

Central banks were first designed or created to deal with financial instability and to give economic and financial support to governments by funding public debt. This was their primary raison d’être. The earliest institutions, like the Bank of England (1694), were established specifically to finance military conflicts and manage national treasuries. Later, banks like the U.S. Federal Reserve (1913) were created as "lenders of last resort" to stop bank panics and standardize currency. As time went on, however, central banks were called upon to assume additional tasks, notably the responsibility for keeping inflation ‘low and stable’ and to address unemployment.

Today, however, as research progressed and additional economic challenges arose, central banks have been called upon once more, from various ideological sides, to address issues of inequality and the environment, and to participate in quantitative easing for the people. But are central banks able to address all these issues? Or, more importantly, should central banks address all these issues. In the end, are we not asking central banks to do too much. In other words, should central banks address income inequality? Should central bank address ecological problems, and above all, should central banks distribute money to the general public?

It is of course one thing to recognize that monetary policy has income distributive or ecological consequences, but asking them to address these issues is a matter of great debate. In the end, is this falling in the mainstream trap of accepting ‘monetary policy dominance’, as coined by Rochon and Setterfield? Are central banks equipped to deal with these additional problems, or should they be relegated to fiscal policy?

Such is the question being asked in this joint symposium between the Review of Political Economy and Economia e Sociedade. Our aim is to publish a total of twenty articles between our two journals asking the important question of what should central banks do today?Important dates: