Abstract
Abstract This paper puts forward a proposal to help monetary policies confront the challenge of the “normalisation” of money creation and interest rates. The difficult unwinding of years of unorthodox policies put financial stability at risk in major monetary centres and in EMEs. The authors argue that global coordination is crucial to facing this challenge. They propose to convene appropriate official meetings to coordinate in an explicit, formal, and wellcommunicated way the process of normalisation and the discussions on the needed longterm changes in the strategy and institutional setting of monetary policies.
Highlights
In an increasingly integrated global financial market the international coordination of monetary policies becomes an increasingly important issue
With the global recovery and the end of the fears of deflation, the times have come to get back to normal money creation and interest rate settings: “monetary policy normalisation is essential in rebuilding policy space
Normalisation is a challenge for technical reasons, as the shrinkage of central banks’ balance sheets, the reabsorption of excess liquidity, the increase in short-term rates and the end of the direct manipulation of medium-long term interest rates, can be complicated to implement with the right timing and in the right order
Summary
In an increasingly integrated global financial market the international coordination of monetary policies becomes an increasingly important issue. This paper deals with the topic devoting special attention to the problems posed by the exhaustion of unconventional policies. After arguing that the short term need to normalise policies makes an important case for coordination, the paper discusses the issue in more general terms and lists some longer term challenges that extend over the theoretical and institutional framework of monetary strategies and would seem to benefit from a stronger international coordination effort. The paper concludes with a concrete proposal to start this effort by convening bi-annual regular meetings of monetary authorities and assuring suitable communication of the results of these meeting to the markets
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