Welcome to the inaugural edition of Central Bank Watch.
Central banks have always played an important role in driving markets and therefore have long been the subject of much research. In a postcrisis world of expanded balance sheets, new responsibilities and unconventional tools, the art of central banking is certainly more important and arguably more misunderstood than it has ever been. A specialist profession of so-called central bank watchers has emerged who dedicate their working lives to listening to every word and monitoring every move these institutions make in the hope of forecasting their next decision. However, central banks continue to shock and surprise markets.
In this publication, we seek to offer our own perspective on central banking based on our collective experience of in excess of two decades working within these institutions. We don’t intend to replicate the high frequency debate in markets and comment on each passing communication and decision. Instead, we plan to focus on the more interesting themes in the policy debate that will shape market dynamics over a longer time horizon.
In our first edition we will focus on two issues. First, we address the latest angst in markets: that central banks are almost out of monetary ammunition and are therefore no longer able to support the economy in response to further negative shocks. Second, we focus on one particular proposal from the academic literature that may be starting to gain traction in the policy debate in the Eurozone: price level path targeting.
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