Central Banks, Crises, and Income Distribution

Monetary policy has undergone some important transformations as a result of the financial crisis. This project explores how monetary policy implementation has taken place since 2008, as compared to the previous era, by studying the evolution of the implementation mechanism of monetary policy during the financial crisis and ensuing Great Recession in a number of countries. We also analyze why some central banks reverted to quantitative easing at a time when monetarist ideas had long been discredited. Finally, we explore the reasons for the various changes in the interest rate operating procedures during the financial crisis, which led to the partial abandonment of Taylor-type rules that had been previously in vogue until the financial crisis, especially in inflation-targeting regimes adopting a neo-Wicksellian framework. The purpose of our three-pronged research program is to provide a comprehensive explanation of the new emerging monetary policy framework, which requires an analysis of both the evolving theories and the institutional transformations that have taken place during the last half-decade since the financial crisis, and to offer an explanation of “how” and “why” these changes occurred. The changing interaction between monetary and fiscal policies is likely to provide an explanation for this evolution.