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The Changing Role of Central Banks

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  • Charles Goodhart

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    Abstract

    Although Central Banks have pursued the same objectives throughout their existence, primarily price and financial stability, the interpretation of their role in doing so has varied. We identify three stable epochs, when such interpretations had stabilised, i.e., a) The Victorian era, 1840s to 1914; b) The decades of government control, 1930s to 1960s; c) The triumph of the markets, 1980s to 2007. The final such epoch concluded with a crisis, when it became apparent that macro-economic stability, the Great Moderation, plus (efficient) markets could not guarantee financial stability. So the search is now on for additional macro-prudential (counter-cyclical) instruments. The use of such instruments will need to be associated with controlled variations in systemic liquidity, and in the balance sheet of the Central Bank. Such control over its own balance sheet is the core, central function of any Central Bank, even more so than its role in setting short-term interest rates, which latter could be delegated. We end by surveying how relationships between Central Banks and governments may change over the next period.

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    File URL: http://www.lse.ac.uk/fmg/workingPapers/specialPapers/PDF/SP197.pdf
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    Bibliographic Info

    Paper provided by Financial Markets Group in its series FMG Special Papers with number sp197.

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    Date of creation: Dec 2010
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    Handle: RePEc:fmg:fmgsps:sp197

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    Web page: http://www.lse.ac.uk/fmg/

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    1. Avgouleas, Emilios & Goodhart, Charles & Schoenmaker, Dirk, 2010. "Living Wills as a Catalyst for Action," Working Papers 10-09, University of Pennsylvania, Wharton School, Weiss Center.
    2. Eichengreen, Barry, 1996. "Golden Fetters: The Gold Standard and the Great Depression, 1919-1939," OUP Catalogue, Oxford University Press, number 9780195101133.
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    Cited by:
    1. Espino, Freddy, 2012. "Un Índice de Estabilidad Bancaria para Perú," Working Papers 2012-015, Banco Central de Reserva del Perú.
    2. Berger, Wolfram & Kißmer, Friedrich, 2013. "Central bank independence and financial stability: A tale of perfect harmony?," European Journal of Political Economy, Elsevier, vol. 31(C), pages 109-118.
    3. Christophe Blot & Paul Hubert & Fabien Labondance & Catherine Mathieu & Christine Rifflart & Vincent Touze & Céline Antonin, 2013. "Politiques monétaires : est-ce le début de la fin ?," Sciences Po publications info:hdl:2441/6ggbvnr6mun, Sciences Po.
    4. Otmar Issing, 2011. "Lessons for monetary policy: what should the consensus be?," Globalization and Monetary Policy Institute Working Paper 81, Federal Reserve Bank of Dallas.
    5. Xavier Timbeau, 2013. "La crise sur un plateau : perspectives 2013-2014," Sciences Po publications info:hdl:2441/6ggbvnr6mun, Sciences Po.
    6. Kotaro Ishi & Kenji Fujita & Mark R. Stone, 2011. "Should Unconventional Balance Sheet Policies be Added to the Central Bank Toolkit? A Review of the Experience So Far," IMF Working Papers 11/145, International Monetary Fund.
    7. Donato Masciandaro & Marc Quintyn, 2013. "The Evolution of Financial Supervision: the Continuing Search for the Holy Grail," SUERF 50th Anniversary Volume Chapters, SUERF - The European Money and Finance Forum.
    8. Stan du Plessis & Malan Rietveld, 2013. "Should inflation targeting be abandoned in favour of nominal income targeting?," Working Papers 12/2013, Stellenbosch University, Department of Economics.
    9. Randall S. Kroszner, 2011. "Commentary: regulating finance and regulators to promote growth," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 313-323.
    10. Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance, 2014. "Les enjeux du triple mandant de la BCE," Sciences Po publications info:hdl:2441/5ijkqb693t9, Sciences Po.
    11. Otmar Issing, 2012. "Central Banks - Paradise Lost," IMES Discussion Paper Series 12-E-10, Institute for Monetary and Economic Studies, Bank of Japan.
    12. Tsvetomira Tsenova, 2013. "International Monetary Transmission with Bank Heterogeneity and Default Risk," FIW Working Paper series 110, FIW.
    13. Daniela Gabor, 2011. "Paradigm shift? A critique of the IMF’s new approach to capital controls," Working Papers 1109, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    14. Issing, Otmar, 2011. "Lessons for monetary policy: What should the consensus be?," CFS Working Paper Series 2011/13, Center for Financial Studies (CFS).
    15. Dalla Pellegrina, L. & Masciandaro, D. & Pansini, R.V., 2013. "The central banker as prudential supervisor: Does independence matter?," Journal of Financial Stability, Elsevier, vol. 9(3), pages 415-427.
    16. Renato Maino, 2012. "Tackling the “Too Big To Fail” conundrum: Integrating market and regulation," FMG Special Papers sp207, Financial Markets Group.
    17. Marinela TANASCOVICI & Magdalena RÃDULESCU, 2012. "Theoretical Considerations Of Price Stability As Part Of The Financial Stability," Scientific Bulletin - Economic Sciences, University of Pitesti, vol. 11(1), pages 79-84.
    18. repec:spo:wpecon:info:hdl:2441/6ggbvnr6munghes9oasij6sc6 is not listed on IDEAS
    19. repec:spo:wpecon:info:hdl:2441/6ggbvnr6munghes9ob627a1r2 is not listed on IDEAS
    20. Crafts, Nicholas, 2013. "What Does the 1930s’ Experience Tell Us about the Future of the Eurozone?," CAGE Online Working Paper Series 142, Competitive Advantage in the Global Economy (CAGE).
    21. Christophe Blot & Jérôme Creel & Paul Hubert & Fabien Labondance, 2014. "Dealing with the ECB's triple mandate ?," Sciences Po publications info:hdl:2441/53ccj34tat8, Sciences Po.
    22. Eva Zamrazilová, 2011. "Monetary Policy: Old Lessons and New Challenges," Politická ekonomie, University of Economics, Prague, vol. 2011(1), pages 3-21.
    23. repec:cge:warwcg:141 is not listed on IDEAS
    24. Emmanuel Carré & Jézabel Couppey-Soubeyran & Dominique Plihon & Marc Pourroy, 2013. "Central Banking after the Crisis: Brave New World or Back to the Future? Replies to a questionnaire sent to central bankers and economists," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00881344, HAL.
    25. Emmanuel Carré & Jézabel Couppey-Soubeyran & Dominique Plihon & Marc Pourroy, 2013. "Central Banking after the Crisis: Brave New World or Back to the Future?," Documents de travail du Centre d'Economie de la Sorbonne 13073, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

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