Monetary Myopia

With the world economy in a sustained but fragile upswing, central bankers have been walking a tightrope to maintain growth alongside price stability, and to prepare for the next inevitable downturn. Before it comes, it is worth asking whether the monetary-policy lessons of recent years have been properly absorbed.

In this Big Picture, J. Bradford DeLong laments that the US Federal Reserve remains beholden to long-held assumptions that will tie its hands when the next crisis comes. And Stephen J. Roach worries that policymakers may be overestimating the effectiveness and underestimating the risks of newer, unconventional policies such as quantitative easing.

Meanwhile, Stefan Gerlach shares similar concerns about the European Central Bank, arguing that its price-stability framework has painted its into a corner. And Linda Yueh suspects that the Bank of England may be committing a similar mistake with its singular focus on inflation. More broadly, Paola Subacchi warns that leadership changes across all of the major central banks seem to augur more of the same, rather than sorely needed new ideas.