On April 13, 2014, the International Monetary Fund (IMF) held a High-Level Conference on “Monetary Policy in the New Normal” with senior central bankers, academics, and private sector representatives. The conference sought to make out the contours of monetary policy once the economy and the financial system have settled into their post-crisis normal.
IMF Managing Director Christine Lagarde set the tone as she opened the event: “The world is continuing to change. Monetary policy, and central banking, will not go back to what they used to be once the crisis is finally behind us.”
The conference chairs, including Jaime Caruana, Chairman of the Bank for International Settlements, Alexander Tombini, Deputy Governor of the Central Bank of Brazil, Thomas Jordan, Governor of the Swiss National Bank, and Benoit Coeure, Member of the ECB Executive Board, as well as high-profile speakers from academia and central banks debated four questions, with the active involvement of the audience.
• The independence of central banks to maintain price stability must be protected, argued participants, despite potentially wider mandates and new institutional arrangements.
• Spillover effects from monetary policy in large advanced economies to small open economies and emerging market economies can be both positive and negative. Further work is needed to reach consensus on how best to contain the negative effects.
• Where macroprudential policies fall short, monetary policy will have to play a larger role than in the past in maintaining financial stability. This is a second best outcome, however, so we should continue to make strong efforts to improve macroprudential frameworks.
• While there is a case in theory for central banks to continue targeting long-term rates in normal times, there are also notable negative side-effects, including for market functioning. Most participants expected central banks to return to targeting short-term rates, leaving transmission to longer-term rates mainly to the markets.
The all-day conference reflects the importance the IMF and its member countries attach to drawing policy lessons from the crisis.
IMF First Deputy Managing Director David Lipton, who closed the event, reiterated the importance of international collaboration in the debate on the future of monetary policy, including with the IMF: “We look forward to working closely with the IMF membership and other interested stakeholders in the years ahead as we transition to monetary policy in the new normal.”