Raghuram Rajan had fired his first salvo of the New Year – not for the first time, of course.
Probably, “a sober assessment of their policies over the last few years” will have to start with the radical possibility that central bankers have very little control over inflation – in either direction. The only known case of successful inflation management was by Paul
Volcker but achieved at the cost of two recessions in quick order. That central bankers were made responsible for inflation was a consequence of the monetarist theory of inflation of Milton Friedman.
It is only a theory and not THE THEORY. What if inflation was more likely caused by real factors than by monetary factors?
Perhaps, central bankers are effective in managing inflation only in the presence of certain enabling conditions and that those conditions are ignored in the assessment and evaluation of their effectiveness and the credit is mistakenly attributed to central bankers.
Another article that appeared in ‘Project Syndicate’ by Jason Furman is very realistic even though it is directed at political leaders. But, it very much applies to central bankers too:
In fact, the solution to our political problems, in 2018 and beyond, may lie not in any new policies or materially changed circumstances, but in finding better ways to communicate about the challenges we face, the efforts being made to address them, and the inherent limits that confront all policymakers. There has to be a better answer than just lying to people about what our policies are capable of accomplishing. [Link]
I like the emphasis on challenges, limitations, etc. That is the best start to solving problems.
So, the origins of a review of central banks’ policies lie elsewhere – in humility!
Thus, the review of central banks’ effectiveness has to be so radical that it won’t happen voluntarily at all!!