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A tale of two perspectives: old or new challenges for monetary policy?

In: Monetary policy in a changing environment

  • Claudio Borio

    (Bank for International Settlements)

  • William English

    (Bank for International Settlements)

  • Andrew Filardo

    (Bank for International Settlements)

This paper reviews the challenges faced by central banks in recent years in order to evaluate their policy implications going forward. To highlight the genuine uncertainty surrounding the lessons to be drawn, the paper examines recent experience through two intentionally polarised perspectives, viz. the "continuity" and "new-environment" views. These perspectives lead to somewhat different conclusions regarding the nature of the challenges central banks are likely to face in the current economic landscape and the policy responses that may be appropriate. While the continuity view stresses the reliability of traditional policy benchmarks, the newenvironment view suggests that it may be worth considering assigning greater weight to the build-up of financial imbalances when calibrating policy. Such an approach could be consistent with current policy frameworks, but it would point to a somewhat longer horizon for evaluating policy alternatives as well as greater attention to the balance of risks to the outlook.

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This chapter was published in:
  • Bank for International Settlements, 2003. "Monetary policy in a changing environment," BIS Papers, Bank for International Settlements, number 19, December.
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