Central Banks and Monetary Policy

Monetary policy is the dominant element within Third Way macroeconomic policy. Starting from the proposition that, in a globalised world, national economic policy has lost much of its former potency, the Keynesian approach to monetary policy is rejected. Thus, government no longer seeks to maintain tight regulation upon financial capital to facilitate macroeconomic management of the economy to secure full employment. Instead, it is assumed that governments need to retain the confidence of investors (domestic and overseas) to avoid capital flowing out of the country and undermining economic and social policy objectives (Driver and Martell, 1998: 61). The viability of reflation in one nation state, that occurs out of synch with other large industrialised economies, is called into question.