Central banks as lightning rods for crises
Overview
Over the last fifteen years, central banks have returned to the primary missions that led to their creation. They played their role of “lender of last resort” during the financial crisis and became involved in financing the public debts that the health crisis increased. But absorbing these two shocks proved costly: growth and inflation collapsed after the financial crisis, and inflation returned after the health crisis. This raises the question of whether central banks are uniquely and better suited to perform this absorption function.
It may also be that it is better to prevent shocks than to have to absorb them. This is the meaning of financial regulation, and it is also why central banks are now including the rise of ecological risks in their concerns. But clearly this preventive function cannot be carried out by central banks alone. How then can their action be articulated with the other components of regulation without calling into question their independence and the pursuit of their main objective of price stabilisation?
Speakers
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University of Tokyo