Book in Progress #5

"Monetary policy has moved off the radar of normative discussion in recent decades. Institutionally, this situation is reflected in the doctrine of central bank independence. Monetary policy has come to be perceived as a technocratic exercise that is best left to a group of experts, whose mandate might be formulated by politicians, but who operate at arm’s length from the latter. In light of the events since the onset of the financial crisis in 2007, it seems no longer appropriate to exempt monetary policy from normative scrutiny in this way. It has become one of the main tools, if not the single most important tool, of macroeconomic policy and is having an impact beyond the confines of its traditional mandate of price stability and financial stability.

Central banks form part of a division of labour in society. Each cog in this complex institutional wheel plays a specific role in promoting what economists call the social welfare function, that is, the set of policy objectives the polity aims to promote. In this book, the authors inquire whether today’s central banks and the institutional design they are part of are adequately serving “the good of the people” in this sense. Putting the narrow objectives standardly associated with central bank actions into a broader social context is one of the original contributions of this book. The analysis envisaged here requires weighing the benefits of central banks as we know them today – for example their relative immunity to electoral pressures in setting interest rate policy and in acting as a lender of last resort to commercial banks – against the costs of present institutional arrangements – for instance the impact that central bank independence has on inequality or on the balance of power between states and markets. Assessing the feasibility of alternative institutional arrangements forms an important part
of this assessment.

More specifically, the book presents three arguments suggesting that the benefits of central bank independence may today be outweighed by its costs. First, the more aggressive monetary policy pursued in response to the financial crises has had significant unintended consequences, notably in terms of rising inequality. Should central banks care about these externalities of their policy? Second, while the literature on central bank independence has traditionally focused on insulating monetary policy from political pressures, the economic pressures from financial markets are equally worrying. Arguably, central banks are increasingly subject to financial dominance. Third and finally, modern societies trust the expertise of central banks to identify the optimal means of promoting the objectives defined in their mandate. Does the scientific community of central banking have the necessary features to justify this trust?"

- 10:00–10:30. Introduction and outline of the book: Clément Fontan (Göteborg University) & François Claveau (Sherbrooke)
- 10:30-11:30. Chapter 2, 'Central banks and inequality'. Commentator: Josep Ferret Mas (Pompeu Fabra, Barcelona)
- 11:30-12:30. Chapter 3, 'Central banks and democratic legitimacy'. Commentator: Axel Gosseries (UCL)
- 12:30-14:00. Lunch

Afternoon session

- 14:00-15:00. Central banks and expertise. Commentators: Louis Larue (UCL)
- 15:00-15:15. Coffee Break.
- 15:15-16:15. Whence central banking? Institutional options for the future. Commentator: Delphine Irac (Paris School of Economics, UCL)
- 16:15-16:30. Concluding remarks.